Tenet CEO counsels patience to wary investors
NEW YORK (Reuters) - Investors looking for signs of a turnaround at hospital chain Tenet Healthcare Corp (THC.N) should focus on trends in paying customers, numbers of outpatient visits and sustained clinical quality over the coming year, its chief executive said on Tuesday.
Tenet, one of the biggest publicly traded hospital chains with nearly $9 billion in annual revenue, is still trying to claw its way back from years of upheaval, culminating in a $900 million payment to the U.S. Justice Department to settle charges of bilking the federal government.
Tenet CEO Trevor Fetter said the key gauges of commercial managed-care patients -- those who can pay for its services -- "because those are the ones you really want" and outpatient visits will portend a turnaround.
"And of course the bottom line is earnings and free cash flow. Eventually the company needs to generate positive free cash flow," Fetter told the Reuters Health Summit in New York. "We've invested heavily in our hospitals, and that needs to generate a return."
Dallas-based Tenet's volume of commercially insured admissions declined in the third quarter, but the rate of decrease has been steadily slowing.
"Trends are moving in the right direction," Fetter said. "Moving through flat would be another good step in the right direction."
Still, Wall Street is not yet convinced.
Ten Wall Street analysts rate the company "underperform" or "sell", 10 rate it a "hold," and one recommends buying the stock, according to Reuters Estimates.
"I think we have the second lowest analyst rating in the S&P 500. The analyst sentiment is surprisingly negative," Fetter said, while managing to maintain his sense of humor about Wall Street's dim view.
When analysts remained negative on Tenet even as the stock dipped to around $3 per share, "that was a risky position for analysts to take at that point. I think there are a lot of them scratching their heads now that the shares have rallied so much after just this one quarter," Fetter said.
Tenet shares added 2 cents to close at $4.37 Tuesday on the New York Stock Exchange, up from their year-low of $3.06 on October 22. Still, that's a very long way from near $50, where they were before the bottom dropped out with a slew of scandals.
Tenet is grappling with rising numbers of uninsured patients, who pay little or nothing for their care. Americans with no health insurance are estimated to be around 47 million, representing the greatest single problem affecting the financial health of hospitals around the nation.
"It's hard to see those trends reversing" absent major reform of the U.S. health care system, Fetter said.
The company reported stable levels of so-called bad debt -- unpaid medical bills as a percentage of revenue -- in the third quarter, largely on better collection rates.
But Fetter said the environment was too volatile to predict levels for 2008.
Reflecting on how low Tenet had sunk about five years ago, Fetter said: "The company faced a mountain of litigation. The federal government was after it, the Department of Justice felt that the company had defrauded the Medicare program. These are really serious things that would generally put a company out of business.
"It's remarkable that the company is alive at all," Fetter added. "We have accomplished the impossible. Now, we just need to do the very difficult, which is to get on a growth track at a time like this."
(For summit blog: summitnotebook.reuters.com/)
