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Universal Health Services (UHS) Hits 52-Week Low on Dull Q3

Zacks Equity Research

Shares of Universal Health Services Inc. UHS tumbled to a 52-week low of $99.56 during the trading session on Nov 8. The slide is believed to have stemmed from poor third-quarter results and a subsequent guidance cut.  

Over the past 52 weeks, shares of Universal Health Services have ranged from a low of $99.56 to a high of $129.74. The average volume of shares traded over the last three months is approximately 0.8 million.

Poor Results Bother

Investors were particularly disappointed by lackluster third-quarter earnings which missed the Zacks Consensus Estimate by 3.5%. The top line also missed the estimate by 2%. This was the second miss in a row.

Quite concerning was weak volumes reported by both operating segments — Acute Care and Behavioral Health Hospitals.

In the Acute Care segment, adjusted admission growth slowed to 3.5% in the third quarter compared with growth of 6.5% in the year-ago quarter. Likewise, adjusted patent day witnessed growth of 1.5% versus 3.4% in the third quarter of 2016. Revenue per adjusted admission declined 0.6% compared with growth of 4.4% in last year quarter.

Softness also persisted in the Behavioral Health Hospitals segment with adjusted admission growth declining to 1.1% in the third quarter compared with growth of 1.6% reported in the year-ago quarter. In the same vein, adjusted patent day declined 0.2% versus growth of 1.6% in third-quarter 2016.  Revenue per adjusted admission grew just 1.3% compared with growth of 3.3% in the year-ago quarter.

Weakness in volumes from this segment is expected to persist in the coming quarter.

Uninspiring Outlook

Shares also took a toll from its tepid 2017 earnings guidance. Based on the operating trends and financial results experienced during the first nine months of 2017, the company revised its estimated range of adjusted net income attributable for 2017 to $7.25 to $7.50 per diluted share from the previously provided range of $7.50 to $8 per diluted share.

This revised guidance, which excludes the effect of electronic health records impact for the year, as well as the impact of the adoption of ASU 2016-09, decreases the lower end of the previously provided range by approximately 3.3%, and decreases the upper end of the previously provided range by approximately 6.3%.

Price Performance

In a year’s time, the stock has lost 16.7%, significantly underperforming the industry’s decline of 6.5%. Given the headwinds facing the company we do not expect any breather for the stock anytime soon.

Zacks Rank and Stocks to Consider

Universal Health Services carries a Zacks Rank #5 (Strong Sell). Some of the better-ranked stocks in the health care space are Amedisys Inc. AMED, Chemed Corp. CHE and Cigna Corp. CI. Each of these stocks carries a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amedisys surpassed earnings estimates in three of the trailing four quarters, resulting in an average positive surprise of 7.2%.

Chemed beat earnings estimates in three of the trailing four quarters, delivering an average positive surprise of 5.9%.

Cigna beat earnings estimates in each of the trailing four quarters, delivering an average positive surprise of 14.6%.

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