Tenet: A Real Soap Opera

The bad news at acute care hospital operator Tenet Healthcare (NYSE: THC  ) keeps getting worse. Today, the company announced that it expects weak results to continue into the fourth quarter. While holding out the hope that 2005 will "improve meaningfully," the company also said that it doesn't expect results to exceed breakeven.

If Wall Street gave awards for soap operas, the story line for Tenet would have to be a finalist. Back in August 2003, the company reported it was being investigated by the Florida Medicaid Fraud Control Unit -- while at the same time saying it paid $54 million to settle with the Feds and California over a series of unnecessary heart procedures.

Fast-forward to today, and the company says, "For volumes to recover, however, we need to substantially resolve our open litigation and investigation matters." With red flags like that, how confident can an investor be about breakeven in the semi-near future?

What really makes this story line worse are planned noncash charges that "could exceed $1 billion." Real money (regardless of whether it was stock or cash) got those "assets" there. Ah, but with the accountant's click of a mouse, they will disappear.

Tenet assures investors that it expects there will be roughly $1.3 billion in cash at the end of 2004 -- the same level as at the end of September. Good news? Maybe, but it's perhaps more than compensated for by Tenet's $4.5 billion in total debt.

Back in January 2003, Tenet expected to earn $1.80 to $2.20 in fiscal 2004. Fat chance. The line for the fourth quarter now is that results will be "below comparable third-quarter results." In plain English, net income will be negative -- and there will be the aforementioned ugly write-off too.

With today's news, the stock is down almost 10% to under $11 -- an award-winning rock impersonation considering it has dropped from $52.07 in June 2002.

The population is aging, and hospitals are well-positioned for growth. For now, investors would be wise to look at giant HCA (NYSE: HCA  ) or smaller Triad Hospitals (NYSE: TRI  ) and wait for Tenet to complete its ongoing soap opera.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.


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