A little good news can have a big effect on ailing hospital stocks.

Take Wednesday's healthy jump in HCA ( HCA). The stock rocketed 10% on a hike in fourth-quarter guidance that was due, in no small part, to special items. ( TheStreet.com examined the numbers Thursday.) For one day, at least, HCA proved immune to the worries that typically arise when operational performance -- measured in this case by patient volume -- shows clear signs of weakness.

"Others are saying, essentially, that HCA's results aren't as good as they look at first glance and that more bad news is to come," Fulcrum analyst Sheryl Skolnick wrote on Thursday. "Our view is: 1) we agree, there is more bad news to come; and 2) we think that most investors have already figured that out and don't think that it can have more negative impact on the stock price."

If anything, Skolnick has found a way to view HCA's shares as cheap even after this week's surge. She notes that the company's valuation, when based on cash flow from operations, has hit a historical low.

Pending a detailed review of the company's actual results, however, Skolnick has yet to raise her neutral rating on the stock. Even so, the longtime hospital bear -- among the first to call the industry downturn -- has strongly hinted that an upgrade could be coming.

"We felt it best to ... raise the potential that this could be the bottom for the stock in order to appropriately signal what is a significant change in our stance on these shares," Skolnick wrote. "We remain neutral but with much less of a negative bias."

For now, the stock is retreating, if mildly. Following Wednesday's big gain, HCA slid back 1.1% to $43.21 a share.

Magic Bullet

Others sound less enthusiastic.

Even UBS analyst Kenneth Weakley -- who already rates HCA a buy -- called the company's fourth-quarter admissions "disappointing." He also questioned whether the company's recent drop in bad-debt expense, which triggered some of the quarter's upside, will prove sustainable going forward.

Meanwhile, Prudential analyst David Shove came right out and called the bad-debt revision a one-time event. And Peter Young, a business consultant at HealthCare Strategic Issues, went a step further.

Young suggested that HCA is "playing games" with its bad-debt numbers. He is convinced that HCA continues to treat a huge volume of uninsured patients -- regardless of the bad-debt expense it reports.

"The seeming new tactic by HCA to address bad debt is to lower charges," Young explained. "I suggest the lower the amount recorded from the start of an uninsured business transaction, the better on 'quarterly look-back.' But how much magic bad-debt improvement is possible?"

For its part, HCA has attributed its recent bad-debt revision to an improvement in collections.

Looking ahead, however, Young fully expects HCA's high levels of bad debt to re-emerge. He points to rising numbers of uninsured patients in Florida -- a key market for HCA -- as evidence for his case. He notes that a recent state-funded study has identified the ranks of both uninsured and under-insured patients in Florida as higher than the national average and growing.

He therefore questions HCA's recent cutback in bad-debt reserves.

"Post the bad-debt announcement, the stock price upside pop was sweet," Young says. "But indigestion is likely to follow."

Potential Pain

To be sure, Skolnick still has her own concerns about HCA and the hospital sector in general.

For one, she believes the late-arriving flu season could hurt first-quarter earnings. She notes that flu patients usually mean low-margin cases that quite often bring no payment. Thus, she expects to see a reversal of fourth-quarter results -- with stronger volumes but weaker earnings and cash flow.

Longer term, Skolnick worries that a moratorium on processing visas could lead to a shortage of both doctors and nurses. Meanwhile, she has raised concerns about doctors at an HCA facility in particular. Recently, she notes, HCA's hospital in Bayonet Point, Fla., took the "unprecedented step" of revoking the privileges of some nine cardiologists.

Skolnick worries about a possible repeat of the scandal at Tenet's ( THC) former hospital in Redding, Calif., where hundreds of patients allegedly underwent heart surgeries they didn't really need.

"Redding Medical Center only had two doctors who were allegedly performing numerous unnecessary surgeries, and its parent recently settled the civil cases for $395 million," Skolnick noted. "This is a potentially dangerous situation for the company and one that will evolve over time."

Recovery Room

For now, however, Skolnick sees a good reason why the stock might look attractive. Surprisingly, she points to bad debt as a trigger.

"The positive result of the bad debt fiasco ... is that every hospital company -- but especially HCA -- has focused on collecting its accounts receivable more efficiently and effectively from every payer source," Skolnick wrote. And "cash flows generally have benefited."

Skolnick went on to say that HCA is currently trading at just 5.9 times its trailing cash flow from operations, compared to its 10-year average of 9.6 times. Moreover, she notes, the company has always taken some action to boost its stock price when that metric has dipped this low.

She points out that HCA has already taken a first step with its recent tender offer. And she believes that, if necessary, the company could follow up with more drastic moves such as selling or spinning off assets.

In any case, Skolnick points to the low cash flow metric as a "major inflection point" that has historically predicted a surge in the stock price. She recently uncovered the trend when revisiting her stand on HCA -- and the overall sector -- as the crowd in her once-unpopular bear camp kept growing larger.

"When the rest of the world agrees with us," Skolnick explained, "we are compelled to check our premises to see what we are missing."