Tenet Stock Up 14% on Mistrial in Case of Alleged Kickbacks
Tenet Healthcare Corp.’s stock jumped 14% on Wednesday after a mistrial in a San Diego kickback case, but some analysts said the shares were overvalued and weak fundamentals weighed on the hospital operator’s long-term prospects.
A federal judge declared a mistrial Tuesday in a criminal case brought by the government that accused Tenet of inappropriately paying doctors to steer patients to the company’s San Diego hospital.
The mistrial, the second time a jury was unable to reach a verdict, raised investor hopes that federal prosecutors might not pursue a third trial.
The U.S. attorney in San Diego must make a decision by a hearing scheduled for April 17.
Shares of Dallas-based Tenet on Wednesday rose $1.12 to $9.02, less than one-fifth of their $52 high, which was set in 2002 before the stock plunged amid an accounting scandal and a federal probe regarding allegations that Tenet bilked the Medicare program. Some analysts say, however, that the share price is still steep.
CIBC World Markets analyst Charles W. Lynch noted that Tenet shares traded at about 11 times 2006 estimated operating earnings and 10 times 2007 estimated earnings, compared with a multiple of six to seven times earnings for its peer group.
The market has failed to recognize “the damage done to Tenet’s core profitability in the past three years,” Lynch wrote in a note.
Tenet, like other hospital companies, is burdened by the cost of treating uninsured patients and the cost of medical technology. The company also is struggling with weak patient demand, which analysts have blamed on its tense relationship with doctors after a series of lawsuits, including the case in San Diego.
Tenet also must resolve a Justice Department probe into allegations the company overbilled Medicare, the federal health insurance program for elderly and disabled patients and a big source of revenue for hospitals.
Some analysts said the mistrial could spur a settlement of that case, although Tenet says they are basically unrelated. It has been in settlement talks on that case for about two years.
