New Twist at Tenet

A long-running restatement effort takes another turn.
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The huge divide between two hospital operators just got a little wider.

Outperformer

Community Health

(CYH) - Get Report

has once again topped Wall Street expectations. Meanwhile, laggard

Tenet

(THC) - Get Report

is reporting yet another problem with its financial statements.

Community continues to outshine the hospital group with solid growth and sunny projections for the future. Unlike most of its peers, the rural hospital chain actually saw patient volumes rise -- and bad debt from the uninsured decline -- in the latest period.

Community's fourth-quarter revenue jumped a healthy 17% to $982 million, easily surpassing the $963 million consensus estimate. Net income climbed 20% to $48.1 million. And operating profits rose 17% to 54 cents a share, coming in 3 cents ahead of Wall Street expectations.

Community also raised the high end of its guidance by a penny and is now projecting 2006 profits, after stock option expenses, of $2.14 to $2.19 a share. Still, some experts have already hinted at continued upside.

Indeed, CIBC World Markets analyst Charles Lynch quickly reiterated his outperform rating on Community -- calling it "one of the best acute-care ideas" available -- upon reviewing the company's latest results.

"For a broken record, it sure is a sweet song," Lynch wrote on Thursday. "Like clockwork, CYH's fourth-quarter results came in ahead of our estimates ...

And we think the strength with which CYH finished out 2005 enhances visibility into 2006 and beyond."

Lynch himself views Community's 2006 guidance -- which assumes a major slowdown in profit growth -- as conservative.

CIBC provides investment banking services to Community. The firm also owns at least 1% of Community's stock and lists its Community analyst as a stockholder as well.

The market clearly liked what it heard on Thursday. Community's stock rose 3.2% to $39.25.

New Math

Meanwhile, Tenet has announced another restatement of its financial results.

Following a lengthy review by the

Securities and Exchange Commission

, the company was already planning to restate its financial reports for 2000 to 2004. But Tenet has since identified an accounting error that will change its recently projected 2004 loss and could possibly impact its previously reported 2005 results as well. The company said that the change -- involving a $120 million tax expense -- should have no impact on shareholders' equity, a measure of net worth.

Tenet investors, by now accustomed to far worse, shrugged off the latest news. Rather than worry, in fact, they sent the company's stock up 2.1% to $8.10, continuing a rally sparked by an analyst upgrade last week.

Credit Suisse analyst Glen Santangelo is now recommending that investors buy Tenet ahead of a turnaround that, so far, has yet to materialize. Santangelo's bullish call contrasts sharply with the caution exercised by many experts who follow the company.

The Tenet Shareholder Committee -- a group that has warned about problems at Tenet for years -- this week portrayed Santangelo's forecast as a "43-page fairy tale" and went on to question the analyst's credentials.

"Mr. Santangelo washed up at Credit Suisse after a short stint at Jeffries & Co., one year at Soundview Capital, four years at Salomon Smith Barney, two years at Goldman and four years at Morgan," the committee wrote on its Web site Wednesday. And "in 2005, he was fined $50,000 by the

NASD

and suspended for two months for disseminating 'confidential and non-public information to different institutional customers.' Mr. Santangelo consented to the sanctions without admitting or denying the allegations."

Santangelo did not immediately return a phone message from

TheStreet.com

seeking his response.

Santangelo's firm counts Tenet among its clients. Specifically, the firm has provided investment banking services to the company over the past 12 months and expects to do so again in the three months ahead.

To be fair, the Tenet Shareholder Committee itself has come under fire for some perceived conflicts of its own. Notably, the committee employed an analyst who had a short position in the company's stock.

Still, even mainstream Wall Street analysts have offered reasons to sell the stock. Late last year, in fact, Gary Taylor of Banc of America portrayed Tenet as the most dangerous stock in his coverage universe. Thus, he highlighted Tenet -- a BofA client -- as the stock to sell in his firm's "Top Picks for 2006."

Taylor, for one, views Tenet as little more than a breakup play with no recovery in sight.

"We've worked through five different valuation methodologies to support our price target reduction," Taylor wrote. And "under reasonable improving operations assumptions, none yield a 12-month target higher than $5" a share.