By now, investors clearly doubt that Tenet ( THC) can cure itself as planned.

Last week, for the first time in nearly two years, investors finally got invited to Tenet headquarters to hear a detailed recovery plan in person. They responded by pushing the stock to its lowest price in more than a decade.

Quite simply, Tenet failed to show skeptics how it will boost patient admissions in a tough industry environment. To hit its aggressive targets, Tenet must reverse a long trend of volume declines and start posting industry-leading admission growth instead.

The company hopes to see patient admissions swing to a 1.5% rise in 2007 from an expected 2% drop this year. But investors are demanding more than promises.

"The company didn't build the bridge from today to tomorrow and explain how they are going to get there," says Sheryl Skolnick, senior vice president of CRT Capital Group. "So the frustration level was quite high. ... I didn't get a sense of outright pessimism, like I have in the past, but there was still a sense of disbelief -- call it skepticism -- that was very strong."

Tenet's full-day presentation sparked only one upgrade on Wall Street. Meanwhile, some analysts followed up by reiterating their underperform ratings on the stock even as it fell through their price targets.

The stock slid another 17 cents to $6.23 on Friday. The shares now must more than double to hit the highest target on Wall Street. In the meantime, they continue to hover below the average Wall Street target of $7.

In-Depth Analysis

Skolnick views the stock as fairly valued right now, but with the potential to approach $9 if all goes well over the next few years.

Compared to many of her peers, the notoriously cautious Skolnick almost seems upbeat. Still, she relied on her own detailed research -- instead of Tenet's latest promises -- when deciding to finally give the company a chance.

"Tenet wants evidence-based medicine," she says. "Well, I want evidence-based guidance. That's what it comes down to."

Worried that Tenet might not produce the kind of details she wanted, Skolnick spent the six weeks leading up to the company's big investor day trying to come up with some concrete guidance of her own. To do so, she combed through Medicare cost reports for every hospital in the company's portfolio. She quantified profits and losses at each facility and then estimated the improvements necessary for the company to hit its targets. Skolnick focused on the 57 viable hospitals that Tenet has decided to keep.

In a nutshell, here is what she found. Of those 57 hospitals, more than half -- 32 -- have actually been generating positive earnings before interest, taxes, depreciation and amortization. Still, the company has been relying on its five most profitable hospitals for more than 40% of that money. Meanwhile, the remaining 25 hospitals have been posting negative EBITDA, with only six of those close to breaking even.

Given that scenario, Skolnick questions how the money-losing company will manage to keep its promise and generate $1.3 billion of EBITDA over the next three years.

"The 25 unprofitable hospitals have to overcome estimated EBITDA losses of approximately $140 million in 2005 to reach $138 million in positive EBITDA in 2008 -- on top of an estimated improvement at the 32 profitable hospitals of $310 million, or 44%, over the same period," she writes. "So no one should now wonder why we are skeptical."

To be fair, however, Skolnick believes that Tenet may in fact pull off a turnaround under a more reasonable time frame. Based on her more conservative scenario, Skolnick sees the company still generating "a relatively robust $1.1 billion" in EBITDA by 2008 and -- if that happens -- the stock hitting $8.69 as a result.

Thus, she no longer recommends selling the stock, but can't bring herself to recommend buying it, either. Quite simply, she still lacks faith in the bull argument -- or even management's own guidance -- right now.

"We can all play with the numbers and make them come out the way we want them," she says. "That's the beauty of modeling companies. The tough part is linking them to the reality of 'Main Street' today and -- even harder -- of tomorrow."

Dark Outlook

The analyst who first exposed Tenet's questionable business strategy -- and triggered the stock's collapse -- indicates investors should prepare for a very rough time.

Kenneth Weakley of UBS reminded investors last week that Tenet, unlike HCA ( HCA) before it, will be trying to pull off its recovery during a painful industry downturn. Weakley actually began warning about that sectorwide downturn, triggered by a decline in health insurance coverage, four years ago, a few months before honing in on Tenet itself .

Weakley feels that his theory has, in fact, been playing out, and last week offered some evidence to support his case. In the past, he says, patient admissions likewise have fallen -- in spite of population growth -- due to changes in health care coverage. More specifically, he notes, patient admissions dropped nearly every year between 1983 and 1992, then barely inched up during each of the five years that followed. As a result, he portrays the healthy growth displayed by hospital companies between 2000 and 2002 -- glory days for Tenet -- as something of an anomaly.

"Growth in admissions since 2003 has been anemic," he points out. "But we don't think this slowdown should be characterized in any way as unusual, unexpected or unprecedented."

'Major Barrier'

Thus, Weakley feels, Tenet faces an uphill battle.

To hit its targets, he notes, the company must keep its expenses under control, maintain solid prices for its services and see its big capital investments pay off. However, he says, the company still has a higher cost structure than its peer group despite all of the cutting it has done. Moreover, he says, the company -- and, indeed, the industry as a whole -- could suffer huge pricing cuts if the government follows through with its plans to revamp the Medicare payment system. In the meantime, he suggests, the company may need far more than capital improvements to bail it out.

Notably, he says, "massive spending by HCA has been of no use. ... In our view, hospitals have been spending money hand over fist for years, with little tangible evidence that shareholders benefit."

Citing the tough macro environment as a "major barrier" to Tenet's turnaround, Weakley last week reiterated his underperform rating and $5.25 price target on the company's stock. His firm has provided investment banking services to the company in the past.

Skolnick, too, feels that Tenet still has "a long way to go" toward recovery. She also cites Medicare cuts as a real risk and believes another violent hurricane season could actually bring the company down.

That said, however, she clearly feels more hopeful than she once did.

"Tenet has to become known to doctors and patients -- and regulators -- as something other than 'that hospital company that keeps paying Medicare fraud fines and charging high prices,'" Skolnick says. "And being known as the 'best hospital in town' by payers, patients and doctors is a much, much better alternative in our view. ... We want to see volumes return, operating leverage achieved and pricing strength maintained. But for the first time in a very long time (since Oct. 31, 2002), we have a sense of hope and optimism that Tenet might just be able to do it."

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