Tenet

(THC) - Get Report

has found a novel way to spare those who can't stand the sight of blood.

The company has decided to share details of its latest quarterly checkup when investors -- braced for another loss -- might be looking the other way. It has chosen news-laden Election Day to report financial results for a quarter that has already proven painful for healthier players in the sector.

For its part, Tenet says it is simply offering quarterly information to investors in the most "timely and orderly" fashion possible. It also points out that at least 70 other companies have chosen to release earnings the same day.

Regardless, some foresee dark news ahead.

By now, Tenet has already warned investors of hurricane damage to its third-quarter results. But the Tenet Shareholder Committee, a group long critical of management, believes that 2-cent hit could "look like a summer breeze" compared with full results for the seasonally rough period.

Still, the group did applaud the company's ability to soften painful blows.

"We have a grudging respect for Tenet's P.R. operation," the committee stated in late October. "They have worked tirelessly -- and sometimes successfully -- to put a pretty face on ... disappointing performance."

But Peter Young, a business consultant at HealthCare Strategic Issues, views spin as no cure for serious industry ailments. And he suspects that Tenet, with its compromised immune system, has been suffering more than most.

Tenet's stock, down 4 cents to $10.66, briefly fell into the single digits after the company reported its last quarterly loss.

Chronic Condition

Young points to results at

HCA

(HCA) - Get Report

, Tenet's larger and healthier peer, when offering his prognosis.

Late last month, HCA set the tone for sector expectations by reporting a sharp decline in third-quarter profits that even the relentless hurricanes in Florida -- responsible for one-quarter of the company's total revenue -- failed to totally explain. Bad-debt expense, which rose to an industry-high 12% of revenue, caused some of that pain. But a new, potentially chronic, problem worried experts more.

HCA reported fresh weakness in its high-margin managed care business. In an early profit warning, HCA first blamed the softness on a rise in patients choosing insurance coverage that pays hospitals less than larger, more traditional plans. But the company wound up pointing to a drop in "acuity" -- or severity of patient illness -- as the real culprit later on.

Young, for one, isn't terribly surprised. He says that drug-coated stents -- new blockbuster medical devices -- have eliminated the need for many lucrative heart bypass surgeries.

Credit Suisse First Boston analyst Kevin Berg clearly agrees. He says his industry contacts have reported a significant drop in open-heart surgeries, ranging from 15% to 50%, since last year's introduction of the new stents.

Still, Berg pointed to another concern as his primary reason for downgrading HCA from neutral to underperform following the company's latest report. He says that hospital price increases -- which drop straight to the bottom line -- continue to shrink with no trend reversal in sight.

"Our general view regarding pricing is that it is currently as good as it gets and that rate increases can only decline from current levels," he wrote. "Furthermore, without pricing, the company has little to count on for growth as volumes are unlikely to materially outperform our expectations of 2% growth."

Looking ahead, Berg has already expressed skepticism about HCA's ability to meet its new 2005 earnings guidance of $2.75 to $2.90 a share. He says he is "mystified" by the assumptions lying behind that range and complains about management's "unwillingness" to provide more color to investors.

Using on his own calculations, Berg expects HCA to fall 3 cents shy of hitting even the low end of its 2005 target. By then, he believes the floor beneath HCA's stock price -- created by a Dutch auction share buyback -- will be long gone. HCA has offered to purchase up to 61 million shares of its own stock for $35 to $41 a share.

The stock, down 9 cents to $36.41 on Friday, actually fell through the $35 floor just days after the Dutch auction was announced. But Berg believes a bigger decline could follow.

"In auctions that price towards the low end of the range (which he expects to happen with HCA), the stocks are twice as likely to drop after the tender than those that price towards the higher end of the range," Berg wrote, citing a recent study of his own. "Clearly, management's confidence in its shares is not necessarily a good indicator of future stock performance."

Question of Confidence

Meanwhile, another hospital company -- which actually pleased the Street last week -- seems less confident than usual.

Health Management Associates

(HMA)

, a company that has long boasted industry-leading growth, hesitated before issuing 2005 guidance. Fulcrum analyst Sheryl Skolnick was quick to notice.

"We can guess, of course, that if HMA had anything really wonderful to say, they'd say it," wrote Skolnick, who has a neutral rating on the stock. "That has been their pattern, and they are not shy about telling the Street when business is good."

In the end, HMA did promise earnings growth -- potentially beating expectations -- after its earnings release. But by then, Skolnick was already questioning whether the company's third-quarter performance was as good as the market seemed to think.

Shares of HMA, while down 20 cents to $20.35 on Friday, have jumped more than 8% since the company reported in-line earnings last week. However, Skolnick quickly cautioned investors against "rejoicing" about the results.

She said that revenue was light, same-store admissions were flat and profit margins were down. She also noted that uncompensated care had risen by 36% in a year. Moreover, she continued to express concern about the quality of HMA's receivables by pointing out that days sales outstanding, or DSOs, "remain at industry-high levels."

Skolnick was unwilling to blame the Florida hurricanes -- which hurt HMA more than most -- for all of that damage.

"Despite admission metrics that clearly could have been worse, we remain concerned that investors could be led to believe that this is an 'OK quarter but for the hurricane,'" Skolnick wrote. "It is our view that we do not know enough yet to make this conclusion."

Young raised questions as well. Specifically, he wondered how HMA could report an increase in same-store occupancy when "all other service metrics" -- including admissions, surgeries and patient days -- had fallen or, at best, remained flat.

UBS analyst Kenneth Weakley, who made his name by exposing Tenet's aggressive pricing strategy two years ago, chimed in with some worries of his own. He, along with Skolnick, even tore apart one metric -- cash flow from operations -- that appeared to be strong.

"Without a nearly three-fold increase in deferred taxes, cash flow would have been down by more than 50%," wrote Weakley, who has a reduce rating on HMA's shares. "Although the impact of the weather prevents a very reliable read on the quarter ... on the surface, a host of financial metrics suggests that HMA's overall growth dynamics are indeed slowing."

Pockets of Health

Weakley took more comfort in the results of a major HMA competitor.

Like HMA,

Community Health

(CYH) - Get Report

specializes in operating nonurban hospitals. And to be fair, Community weathered some of the same problems seen at HMA: sluggish same-store admissions, declining margins and -- to a lesser extent -- hurricane damage.

Still, Weakley noted, total admission growth, although down from historical levels, came in at a "solid" 9.3%. And the company, unlike larger HCA, continued to enjoy strong pricing during the quarter.

Given the company's past performance and future potential, Weakley believes the stock -- down 30 cents to $26.63 on Friday -- remains undervalued. He recommends buying the shares.

Another analyst spotted strengths at

Triad Hospitals

(TRI) - Get Report

as well. David Shove of Prudential noted that Triad outperformed its peers in three key areas -- admissions, surgical volume growth and pricing -- in the latest period. He attributed the company's success to a "keen operation focus and portfolio rationalizing efforts."

Even so, Shove remains too cautious to raise his neutral rating on the stock. He cited bad-debt expense -- which rose during the quarter -- as a major reason.

"Despite its notable success in producing revenue growth," Shove wrote, "we believe Triad remains vulnerable to industry trends, which appear to be affecting earnings power once more."

Triad did manage to beat Wall Street profit estimates for the quarter. But another company,

LifePoint

(LPNT)

, proved to be the biggest winner of the bunch.

LifePoint, another nonurban hospital operator, displayed multiple strengths. It topped both revenue and profit estimates due to solid admissions growth, strong pricing and moderating expenses. Weakley noted that patient acuity -- particularly in high-margin areas like cardiology and orthopedics -- also increased during the period. Indeed, he only downgraded the stock, cutting it from neutral to reduce, because it rallied so hard after the company's quarterly update.

The stock immediately jumped 9.8% to $34 but has since retreated to $32.14.

At the time, even Skolnick -- who is known for her cautious stand on the industry -- applauded the company's results.

"At the risk of getting too excited too early in the day, we believe that LifePoint's significantly better-than-expected third-quarter results are cleaner and stronger than any we have seen from LifePoint for some time," wrote Skolnick, who nevertheless maintained her neutral rating on the stock. Indeed, "on its face, this looks like one of the best reports so far in this very difficult hospital-operating environment."

In contrast, mainstream analysts generally expect Tenet to be the worst performer in the group. On average, they predict a 21% dive in third-quarter revenue. They foresee a 5-cent loss for the quarter and an 8-cent loss for year. And not one expects the company -- a fallen Wall Street darling -- to end the year in the black.