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LifePoint's Sinking Feeling

Shares drop after an unexplained executive departure.



investors seem lost after the sudden departure of the company's respected CFO.

They have to wonder why Michael Culotta, the company's veteran finance chief, has chosen to leave so soon after CEO William Carpenter's arrival. The company itself has offered no explanation.

"The company does not know if he has resigned to take another position," says Sheryl Skolnick, senior vice president of CRT Capital Group. But "Carpenter did say that a search for Mr. Culotta's replacement has already begun -- so how sudden could this 'resignation' have been?"

LifePoint has assured investors that no major accounting problems loom. Yet, without further information, the company has left Skolnick and others worried that Culotta departed because of conflicts with management. Now, everyone seems to feel a bit uneasy about LifePoint's remaining leaders, particularly Carpenter.

Meanwhile, Skolnick has already expressed concern about the "team player" that Carpenter said he will seek as Culotta's replacement.

"Sorry, but we don't think the CFO should completely be a team player," she said. "At the end of the day, the CFO needs to be the one to say: 'The buck stops here' on financial matters."

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Peter Young, a business consultant at HealthCare Strategic Issues, believes that Culotta is a competent CFO who sees trouble on the way. Young notes that LifePoint operates hospitals in rural Southern towns where manufacturing plants -- which often rank as the largest employer -- have been struggling to operate and moving elsewhere as a result. Notably, he says, LifePoint loses lucrative commercially insured cases when that happens.

Moreover, Young adds, tough industry conditions have only made the situation worse.

"When economic hard times befall smaller towns and the payer mix deteriorates, doctors and other in-demand licensed healthcare providers move on to greener pastures -- but the hospital is still there," he explained. "I'd say a competent CFO has the ability to foresee the operating environment ahead and, perhaps in this case, had disagreements with management over agenda" as well.

Lehman Brothers analyst Adam Feinstein promptly downgraded LifePoint's stock from overweight to equal-weight as a direct result of the CFO's departure. Feinstein worries about the possible disruptions and volatile stock performance that could now lie ahead.

Feinstein lowered his price target on the shares from $41 to $38 as well. His firm makes a market in, and regularly trades, LifePoint securities.

Skolnick, who has a similar fair-value rating on LifePoint herself, no doubt viewed that downgrade as more than justified.

"LifePoint still has an untried CEO and an unnamed CFO," she stressed. "That's not a recipe for a buy-rated stock, that's for sure. ... The uncertainty as to why Mr. Culotta resigned, coupled with the fact that the CEO is still untried, could -- and, we believe, should -- create significant pressure on the stock."

The stock indeed took an immediate hit, falling 4.6% to $36.30 on Friday.