If you had told me in 2003 that HealthSouth Corp. (NYSE: HLS) would become a shining beacon of good corporate governance, I would have laughed.

That was when former chairman and CEO Richard Scrushy was charged with securities fraud by the SEC. In 2005, he was convicted of money laundering, extortion, obstruction of justice, racketeering, and bribery. Now he's wasting away in Club Fed -- a far fall for a CEO who was so narcissistic that he insisted that his portrait be hung in the lobby of every one of the rehab facilities his company operated.

Analyst upgrades:

• Canaccord upgraded Rio Tinto (NYSE: RTP) to Buy from Hold citing valuation following the severe price decline following BHP Billiton's (NYSE: BHP) dropped bid.
• UBS upgraded Itron (NASDAQ: ITRI) to Buy from Neutral citing valuation and defensive business mix.
• Jefferies upgraded shares of HealthSouth (NYSE: HLS) to Buy from Hold on valuation and maintains a $13.50 target.
• Melco PBL Entertainment (NASDAQ: MPEL) was raised to buy from Neutral at Goldman.
• PG&E (NYSE: PCG) was upgraded at Merrill Lynch to Buy from Neutral.
• HSBC Holdings (NYSE: HBC) was upgraded to Buy from Neutral at UBS.

Analyst downgrades:

HealthSouth Corp. (NYSE: HLS) was one of those one-in-a-lifetime stocks. Once a highflier trading on the New York Stock Exchange, it descended to the Pink Sheets in the midst of a wave of accounting and management scandals. Federal agents raided the company's headquarters, and a stock that had traded in the 20's not so long ago sank below a dime.

Then just as quickly as it had collapsed, the stock bounced back. Some investors had turned $5 thousand investments into over a million as the company avoided bankruptcy and made a rebound.

In a world where major accounting scandals, SEC charges, and federal raids are a usually a sign of the end, HealthSouth's new management team led the company to an incredible recovery.

Dr. William Cast is a doctor who had worked for a clinic that was acquired by the company, and later became an investor who followed the stock through a Yahoo! Inc. (NASDAQ: YHOO) message board. Going South: An Inside Look at Corruption and Greed, and the Power of the HealthSouth Message Board is the product of that experience. While the financial media was declaring the stock good as dead, Yahoo! posters analyzed the company's prospects and decided it would be able to pull through. Cast and others backed up the truck and became some of the very, very few investors to achieve an early retirement by investing in a Pink Sheets stock under FBI investigation.

Health South is an exception of course, and scandal-ridden companies should probably be avoided like the plague by most investors. But this book is a pretty exciting tale of the power the internet can, but rarely does, have in allowing investors to share due diligence.

While investors around the world have been dumping stocks the past few days, HealthSouth Corporation (NYSE: HLS), the restructured rehabilitation company, reported one heck of a quarter.

The company now expects to generate 2007 EBITDA of $300 and analysts are forecasting 2008 EBITDA of $360 million. Interest expense is estimated to come in at $200 million, maintenance capex of $30 million, leaving $120 million to $130 million for debt reduction and fund growth.

More importantly in today's tight credit market, the company was able to lock in all of its debt expense on low-cost, fixed-rate terms -- before the recently brutal change in the credit markets.

New HealthSouth management joined the company in 2004 and the fruits of their labor are just paying off. This is one gem of a turnaround investors should bottom fish on during this market correction.

Leerink Swann & Company, an investment banking firm specializing in the healthcare sector, reiterated its $27 price target on this $17 stock this morning.

HealthSouth Corporation (NYSE: HLS), the Alabama-based rehabilitation company, is close to completing a massive restructuring after years of tough times.

New management, three divestitures to be completed by the end of 2007 and a soon-to-be-more-friendly approach from Medicare and Medicaid, should allow this stock to perform nicely during the next three-to-five years.

HealthSouth was a boom-bust stock as former CEO Richard Scrushy built the diversified healthcare company into one of the larger and faster growing healthcare companies in the US during the 1990s. However, a number of financial irregularities came back to haunt Scrushy and his shareholders, leading to the stock tanking.

New management was brought in earlier this decade--well-respected execs from HCA--who first had to address the legal and accounting issues that plagued the company. Then last year the company announced it would begin selling non-core assets and become a focused rehab business.

The divestitures are for the most part completed and now the last part of the puzzle needs to be put in place. Medicare and Medicaid need to get the correct reimbursement rates so this very important industry can serve customers effectively and earn a return on investment. As boomers get older and stay more active, the rehab service that HealthSouth provides will become more and more important.

HealthSouth's stock ran up to $25 in anticipation of its three divestitures but has sold off to $20.50. Use this weakness to buy the stock, this could be a multi-bagger in the next few years.

There has been lots of private equity interest in the health care sector. Some of the notable deals include the buyouts of HCA and Triad.

The latest deal comes from the Texas Pacific Group (TPG). The firm has agreed to pay $945 million for the Surgery Division of HealthSouth Corp. (NYSE: HLS). The division has 139 outpatient surgery centers and three surgical hospitals across 35 states [revenues were not disclosed].

Interestingly enough, HLS will keep an equity sliver worth about $25 million to $30 million.

Basically, it's a sign that HLS sees potential in the division – but it also must deal with restructuring its operations. Might as well allow TPG to use its magic on the division, huh?

In fact, the deal will go a long way in paying down HLS's debt load.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

MOST NOTEWORTHY: HealthSouth Corp (HLS) and CVS/Caremark Corp (CVS) were today's notable initiations:

• Cowen started HealthSouth (NYSE: HLS) an Neutral rating citing valuation.

• UBS resumed coverage of CVS/Caremark Corp (NASDAQ: CVS) with a Buy rating and $42 target, calling the company a "top pick."

OTHER INITIATIONS:

• Roth Capital initiated shares of Bakers Footwear Group, Inc (NASDAQ: BKRS) with a Hold rating and $11 target, taking a "wait and See approach" until sales can be maintained.

• JP Morgan initiated Ipsco Inc (NYSE: IPS) with an Overweight rating and USG Corp (NYSE: USG) with an Underweight rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required)

MOST NOTEWORTHY: Visicu, Inc (EICU), Ciena Corp (CIEN), Apple Inc (AAPL) and Time Warner Cable (TWC) were some of today's more notable initiations:

• Prudential started Visicu Inc (NASDAQ: EICU) with an Underweight rating and $7 target and said competitor substitute ICU modules, hesitant customers and patent challenges could impact future sales activity.

• RBC initiated Ciena Corp (NASDAQ: CIEN) with an Outperform rating and $33 target based on improving demand outlook driven by growth in video and data-traffic.

• W.R. Hambrecht initiated shares of Apple Inc (NASDAQ: AAPL) with a Buy rating and $110 target based on the company's impressive desktop and notebook offering that continues to grow faster than the industry and command higher ASPs, an iPod franchise that dominates the category and represented almost half of total company revenues in the strongest quarter in its history, December 2006, among other things.

• Deutsche Bank initiated Time Warner Cable (NYSE: TWC) with a Buy rating and $46 target. The firm is bullish on cable sector prospects and sees upside from consumer and commercial telecom services and growth in advanced video services.

OTHER INITIATIONS:

• RBC started F5 Networks, Inc (NASDAQ: FFIV) with an Outperform rating and $90 target.

• Stanford initiated HealthSouth Corp (NYSE: HLS) with a Buy rating and $31 target.

• Kenexa Corp (NASDAQ: KNXA) was started at Jefferies with a Hold rating and $36 target.

• Stern Agee initiated Chico's FAS, Inc (NYSE: CHS) with a Buy rating and $26 target.

• JP Morgan initiated Red Hat, Inc (NYSE: RHT) with a Neutral rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Ipsco Inc (IPS) and ASV Inc (ASVI) were today's most notable initiations:

• RBC believes Ipsco Inc (NYSE: IPS) is an acquisition candidate and initiated the company with a Top Pick rating.

• Ferris, Baker Watts started ASV Inc (NASDAQ: ASVI) with a Buy rating and $20 target, as the firm believes ASV Inc is the only manufacturer to design rubber track loaders from the ground up and to employ a suspended undercarriage.

OTHER INITIATIONS:

• Jefferies initiated CDI Corp (NYSE: CDI) with a Hold rating and $28 target and is positive on the long-cycle drivers of CDI's business; the firm also believes the company has the potential for operating leverage, but will remain on the sidelines due to concerns of the near-term macro environment.

• Wachovia initiated Sealy Corp (NYSE: ZZ) with a Market Perform rating citing lack of visibility into fourth-quarter and first-quarter earnings.

• Sun Trust Robinson Humphrey initiated HealthSouth Corp (NYSE: HLS) with a Buy rating and $27 target.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Human Genome Inc (HGSI) and Trump Entertainment Resorts Inc (TRMP) topped today's list of most notable initiations:

• Citing risks to Albuferon and Lympho-Stat, Morgan Stanley initiated Human Genome Inc (NASDAQ: HGSI) with an Underweight rating and $8 target.

• Bear Stearns started shares of Trump Entertainment Resorts Inc (NASDAQ: TRMP) with a Peer Perform rating as they believe Street estimates are too high, the company lacks development opportunities outside of Atlantic City, and uncertainty stemming from the new Atlantic City smoking ban.

OTHER INITIATIONS:

• Lehman Bros started Isis Pharmaceuticals Inc (NASDAQ: ISIS) with an Overweight rating and $20 target.

• Leerink Swann initiated HealthSouth Corp (NYSE: HLS) with an Outperform rating and was added to the Focus List; one of the firm's consultants performed an analysis of the company's in-patient rehab business in order to determine the impact of the 75% rule after it is completely implemented, as well as determining the opportunities from market consolidation. As a result of the analysis, the firm believes that the company is in a good position to successfully navigate the phase-in of the 75% rule.

• Pali Capital initiated China Mobile Ltd (NYSE: CHL) with a Buy rating and $66 target, based on expectations of sustaining total subs growth over 20%.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).