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Tenet Converts a Tough Critic

A longtime analyst bear signals it's time to buy.

Tenet Healthcare

(THC) - Get Tenet Healthcare Corporation Report

has passed a major test.

The challenged hospital company has finally convinced a prominent company bear that it's truly on the mend. Early Friday, Credit Suisse analyst Kenneth Weakley -- one of the most celebrated healthcare experts on Wall Street -- started recommending Tenet's stock in anticipation of a long-awaited recovery.

Investors eagerly responded, sending shares of Tenet up 15% to $6.25 in heavy trading. The same stock fetched less than half that price just six months ago.

"I think the evidence (of a turnaround) has been there," says CRT Capital analyst Sheryl Skolnick, who has been bullish on Tenet for some time. "It's just a question of when people reach their comfort point. (But) clearly, Tenet is Wall Street's darling today."

Tenet used to be Wall Street's darling years ago as well. But in late 2002, Weakley exposed an aggressive pricing scheme that triggered the company's collapse. He remained bearish on the company for years, as it struggled to recover in a brutal industry environment defined by weak patient admissions and rising bad debts from the uninsured.

Finally, last August, Weakley predicted -- for the first time ever -- that Tenet would wind up bankrupt in the end.

"Since then, Tenet has had two consecutive earnings quarters (Q3'07 and Q4'07) of positive direction -- with Q4'07 showing the first signs of positive volume growth in years," Tenet touted in an email to

on Friday. Now "the market will be closely watching Tenet's Q1'08 earnings report coming up May 6 to see if the third time's a charm and Tenet's recovery is well under way."

Clearly, by now, even Weakley sees reason for hope. In February, he abandoned his long-standing sell recommendation on Tenet's stock and installed a neutral rating instead. At the time, he felt encouraged by the company's improving volume trends.

Now, after watching managed care giants


(UNH) - Get UnitedHealth Group Incorporated (DE) Report


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report weak metrics, Weakley believes that Tenet could be securing higher prices as well

"Over the past six months, and especially so in the past two months, a range of healthcare players have suggested that pricing may be improving for the hospital sector," Weakley explained on Friday. Thus, "our renewed confidence today relates to our growing conviction that one aspect of the THC story that we had assumed invalid -- that being 'pricing' -- is indeed beginning to take hold."

While rising admissions clearly boost hospital performance, higher prices can help even more. Notably, quite often, price increases fall straight to the bottom line.

Therefore, unlike many analysts, Weakley now expects Tenet to post a profit in 2008. He then looks for that profit to almost double one year later.

"Clearly, recovery stories in the hospital space are a challenge, especially for THC, given its mixed history as an operator," Weakley admitted. But "the THC investment story - one that we have been closely tied to for some time - is obviously in some form of recovery mode."

Weakley upgraded

Health Management Associates


on Friday as well. The stock jumped 10% to $7.13 in response. Other hospital operators - including

Community Health Systems

(CYH) - Get Community Health Systems Inc. Report


Universal Health Services

(UHS) - Get Universal Health Services Inc. Report

-- also posted big gains.