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Can Admissions Rise Fuel Universal Health (UHS) Q3 Earnings?

Zacks Equity Research

Universal Health Services, Inc. UHS is set to report third-quarter 2017 results on Oct 25 after  market close.

Last quarter, the company delivered a negative earnings surprise of 6.3%. Let’s see how things are shaping up for this announcement.

The company’s two segments, Acute Care and Behavioral Health, have been performing strongly over the past many quarters. The segments have been continuously witnessing a rise in admissions, licensed beds as well as patient days that have significantly resulted in higher revenues.  This yet-to-be-reported quarter is also likely to see the same bullish trend.

The Zacks Consensus Estimate for total revenue is pegged at $2.6 billion, reflecting year-over-year growth of 8%.  Our consensus estimates for revenues from Acute Care and Behavioral Health segments are currently pegged at $1.4 billion and $1.2 billion, up 10% and 6.4% respectively, year over year.

Since 2012, the average number of licensed beds in the Acute Care hospitals and Behavioral Health centers kept increasing and the trend is expected to continue in the third quarter.. Our consensus estimates for Average Licensed Beds in Acute Care and Behavioral Health are pegged at 6.1 billion and 23.1 billion, up 3% and 6% year over year, respectively.

The Zacks Consensus Estimate for Admissions in Acute Care and Behavioral Health is pegged at 73.1 billion and 120.7 billion respectively, up 5% and 7% year over year, respectively. This in turn is expected to aid the company’s top line in the third quarter significantly.

Other Factors

Universal Health’s efforts to enhance shareholders’ value through share repurchases might have boosted its bottom line by limiting share count.

Nevertheless, rising costs related to interest payment, reserves for settlements, legal judgments and lawsuits, plus impairments of long-lived assets might have put pressure on margins.

Earnings Whispers

Our proven model does not conclusively show that Universal Healthis likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Universal Health has an Earnings ESP of -1.01%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Universal Health Services, Inc. Price and EPS Surprise

Universal Health Services, Inc. Price and EPS Surprise | Universal Health Services, Inc. Quote

Zacks Rank: Universal Health carries a Zacks Rank #3, which though increases the predictive power of ESP, the company needs to have a positive ESP to be confident about an earnings surprise.

Conversely, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the medical sector that you may want to consider as these stocks have the right combination of elements to come up with an earnings beat this quarter:

Aetna, Inc. AET, which is set to report third-quarter earnings on Oct 31, has an Earnings ESP of +1.20% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teladoc Inc. TDOC has an Earnings ESP of +0.76% and a Zacks Rank #3. The company is set to report third-quarter earnings on Nov 1.

Humana, Inc. HUM has an Earnings ESP of +1.10% and a Zacks Rank of 3 as well. The company is set to report third-quarter earnings on Nov 8.

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