Tenet Changes Course

The turnaround-minded hospital chain gets a new exec.
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A doctor will soon oversee

Tenet's

(THC) - Get Report

operations.

Stephen Newman, a physician who has led recovery efforts in Tenet's California division, will take over as the company's operating chief on Jan. 1. Newman replaces Reynold Jennings, who has struggled to mend the hospital chain for nearly three years.

Jennings will stay on as vice chairman through mid-2007, aiding Newman with the transition, and then leave the company altogether. Jennings is 60, four years older than his chosen successor.

Sheryl Skolnick, senior vice president of CRT Capital, feels that the change could signal one of two things. Either Jennings has run into problems with his turnaround plan, she says, or he has simply grown tired and wishes to retire.

Skolnick, who has no position in the stock, tends to believe the latter. Regardless, she seems relieved to see Jennings go.

"I have never been a huge Reynold Jennings fan," says Skolnick, who was critical of Jennings' early optimism about the company's turnaround. "So it's actually OK with me that he's retiring. ... Newman is a tough cookie, a go-getter -- and I like him."

Importantly, Newman is also a doctor. Before, Skolnick says, Tenet has fielded criticism for its lack of doctors in the executive suite. But now, she notes, Tenet has chosen a physician to oversee its entire operations and could win over more doctors -- who have been sending their patients elsewhere -- as a result.

"He dramatically improved operations in California," she says. "So this could ultimately be a good thing."

Skolnick, for one, continues to hope for the best. In recent months, she has broken away from a huge pack of bears to recommend the stock. Her firm has no banking relationship with the company.

Shares of Tenet fell a penny to $7.08 on Tuesday, leaving them near the low end of their 52-week range.

Dark Prognosis

Stanford Financial analyst Gary Lieberman sees a bigger fall coming.

Last week, Lieberman initiated coverage of Tenet with a sell recommendation and a $4.50 price target on the shares. By now, Lieberman has lost all faith in the company's ability to significantly improve its margins. He worries about lucrative commercial admissions -- which continue to fall -- in particular.

"The biggest piece of Tenet's strategy is to address any and all physician issues, both big and small, in order to win back the hearts and minds of physicians," writes Lieberman, whose firm has no business ties with or stake in the company. "This is a difficult task for any hospital to achieve and, if possible, would take multiple years in our view."

Newman could help out. But Lieberman feels that investor patience -- already tested for so long -- is clearly wearing thin.

"We think the clock it ticking," he wrote just ahead of Newman's appointment. "If Tenet has not made some kind of meaningful positive step to improve its margins over the next year, we think the teeth -- what few might be left -- in the bullish argument for Tenet will start falling out."