Progress is a concept that's pretty much always both subjective and relative -- after all, more than one company has pointed toward doing less badly as "progress." And so it would seem to be with Tenet Healthcare (NYSE: THC ) . The company looks to be in better shape than it was, but it was in rough shape to begin with, and there's no telling whether management is up to the challenge of achieving some rather heady goals.
In the quarter that was, total operating revenue rose 2.5% as admissions were down (2.7% for inpatient, 1.9% on an equivalent basis), but pricing was stronger. While the company did report a loss from continuing operations, adjusted EBITDA rose 37% and the margin rose to 9.5%. Even if you exclude some items, margins improved, but there's still a sizable gulf between today's level and the 11%-13% target range.
What's more, there are some definite ongoing pressures on the company. Like Lifepoint (Nasdaq: LPNT ) , HCA (NYSE: HCA ) , Triad (NYSE: TRI ) , and most everyone else, uninsured patients are putting heavy stress on the system. The company's bad debt ratio did decline from last year, but adjusting for uninsured discounts leads to a fairly sizable year-over-year increase and an absolute level (14%) that's just too high. Moreover, uninsured admits continue to climb, reaching 4% this quarter. Trying to execute a turnaround when you have to deal with that scale of unpaid bills is daunting, to say the least.
I have to admit a soft spot for this kind of risky turnaround, partly because I've had a lot of success with them in the past. In the case of Tenet, the company needs to see volume growth and better bad debt results, and it saw neither this quarter (on a year-over-year basis). That's a tough hurdle, particularly when everybody else in the industry has the same basic goals in mind. Moreover, I really don't expect much outside help -- Congress doesn't seem willing or able to tackle the situation in a way that would really change anything.
If things go right, this is at least a double. If things go wrong, bankruptcy is not out of the question. That's a pretty stark contrast, but that's the way it works with these stocks. Fools who want to dabble here should be extra careful on their due diligence; it's a long slog ahead, so make sure you really know what you're getting yourself into with Tenet Healthcare.
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Fool contributorStephen Simpsonhas no financial interest in any stocks mentioned (that means he's neither long nor short the shares).