Tenet ( THC) is stuck in the intensive care unit with no discharge date in sight.

After undergoing months of exploratory surgery, Tenet has yet to identify exactly when -- or even how -- the company plans to recover. Investors had expected Tenet to offer a clearer prognosis when it reported year-end financial results on Monday. But some big questions remained unanswered even after Tenet filed more than 100 pages of financial information, then hosted a lengthy conference call, early this week.

Specifically, analysts continue to wonder how Tenet will achieve break-even operating results this year. They're also waiting for specific guidance on the company's potential operating margins and when those margins might improve.

Fulcrum analyst Sheryl Skolnick, who upgraded Tenet from sell to neutral just ahead of Monday's report, marveled at the lack of clarity. She called Tenet's fourth-quarter report "a mess" and found herself backing away from her expectations for 2004.

"THC reported one of the most confusing quarters this analyst has ever seen," stated Skolnick, who has covered the industry for years. "We have read the 10-K and the earnings release, and the only conclusion that we can legitimately draw is that our 2004 estimate ... is likely to be wrong."

Prudential analyst David Shove went a step further by calling his own 2004 forecast "a guess at best" and suspending his price target on Tenet's stock after exhausting his means of evaluating it. He declared the company's fourth-quarter results "far worse than our bearish expectations." And he adopted an ominous tone when discussing the company's future.

Shove believes that just one of three risks -- earnings shortfalls, asset-sale delays or government fines -- could push Tenet over the edge as early as this year. He expressed particular concern about the first threat on that list.

"Unless Tenet can demonstrate that an earnings stream rebound is feasible, Tenet's financial liquidity will be seriously questioned by its creditors, physician partners and other vested parties," wrote Shove, who has urged investors to sell Tenet shares for some time. "Should they lose faith in Tenet's viability, we believe the company's eventual collapse would be a self-fulfilling prophecy."

Growling Back

Tenet critics now have a track record for exposing serious risks before the company itself does. Even so, Tenet was quick to dismiss such bearish arguments on Tuesday.

Shortly after opening a two-hour conference call, Tenet CEO Trevor Fetter insisted that Tenet bears had jumped to at least two premature -- and inappropriate -- conclusions. He said they wrongly assumed they could estimate both the size and the timing of material government fines.

Tenet faces multiple investigations for allegedly defrauding the government. However, Fetter declared on Tuesday that a huge penalty, triggering a liquidity crisis this year, "just isn't possible." And he warned investors against listening to those who might claim otherwise.

"Some critics have interests that compete with the interests of shareholders," he cautioned. So "take some of what you read about Tenet with a very large grain of salt."

Later, Tenet CFO Stephen Farber pounced on the opportunity to address yet another investor concern. He portrayed Tenet's new credit agreement -- which triggered a huge selloff in the company's stock -- as a sound one despite its much smaller size.

"Let me add my perspective to the mix since I'm the person ultimately responsible for the transaction," Farber said. "Had it not been good, we would not have agreed to it."

Farber went on to predict that Tenet would tap into the credit line only late this year -- if at all -- even though the company expects to generate negative cash flow in 2004. He believes the cash drain will then ease, and possibly even disappear, in 2005. Still, he pointed to Tenet's biggest challenges -- slowing revenue and rising bad debts -- as ongoing risks to the company's assumptions.

Weakened Pulse

Despite lingering concerns, hopeful investors pushed Tenet's stock up 7% to $10.50 late Tuesday afternoon. But analysts continued to fret about the company's condition following the fourth-quarter report.

"Below-plan results reflected deterioration in virtually every operating metric," noted JP Morgan analyst Lori Price, who has a neutral rating on Tenet's shares. "Most notably, cash flow from operations ... deteriorated substantially from the prior two quarters sequentially and fell to its lowest level in recent memory."

Price pointed out that Tenet's fourth-quarter cash flow of $118 million -- down from $350 million a year earlier -- failed to cover the company's capital expenditures. She blamed the shortfall on Tenet's growing inability to collect payments from managed care companies. And she warned that Tenet could wind up generating just $472 million in operating cash flow this year. The same company generated five times as much in 2002 and more than twice as much in a tough 2003.

The company has already warned that, after capital expenditures, it could actually post negative cash flow of up to $600 million in 2004 and another $400 million in 2005. Thus, investors could be waiting years for a turnaround.

"Tenet should now be viewed as a '2006 story' rather than a '2005 story," decided Lehman Brothers analyst Adam Feinstein.

Early this year, Feinstein issued an ill-timed upgrade of Tenet's stock -- raising it from under-weight to equal-weight -- just before the company announced plans to shed nearly one-third of its hospitals in a massive restructuring. Now, Feinstein wonders why Tenet expects no immediate margin improvement even after selling those underperforming assets.

"The biggest surprise from Tenet's January restructuring release was its guidance suggesting that margins will decline in 2004," Feinstein wrote on Tuesday. "This is surprising since the assets that are being sold ... generated zero operating profits."

Already, Tenet's pretax operating margins are plunging. Price noted that fourth-quarter margins had fallen by two-thirds in a single year and declared the latest results "unimpressive."

SIG analyst John Souter expressed more awe about the 17-page legal section in Tenet's latest 10-K. She also questioned whether the long list of cases could be put off -- without any resolution -- much longer.

For its part, Tenet has announced a new willingness to settle such cases, when appropriate, and move forward.

"We need to get back to spending more time in the patient's room and less time in the courtroom," said Peter Urbanowicz, a former government official tapped last year to become Tenet's new legal counsel. "Protracted litigation and investigations is not part of our mission."

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