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Universal Health (UHS) Misses Q3 Earnings, Narrows View

Zacks Equity Research

Headquartered in King of Prussia, PA, Universal Health Services Inc. UHS reported third-quarter 2016 adjusted earnings of $1.60 per share, missing the Zacks Consensus Estimate by 7 cents. However, earnings improved 4.5% on a year-over-year basis.

The year-over-year upside was driven by almost an 8.2% increase in revenues to around $2.40 billion, which beat the Zacks Consensus Estimate of $2.39 billion.

Of late, the market sentiments for Universal Health have not been very impressive, as the company represents a negative one-year return of 1.3%, lower than the S&P 500’s 2.4% over the same time frame.

 

 

Business Highlights

Net revenues from acute care services increased 9% during the third quarter of 2016. Notably, same facility revenues from acute care hospitals and adjusted admissions increased by 4.6% on a year-over-year basis. Meanwhile, adjusted patient days increased 3.8%. Net revenue per adjusted admission surged 3.2%, while net revenue per adjusted patient day was up 4% on a year-over-year basis.

Universal Health has been a pioneer in providing care to deprived patients at low costs. Even in this quarter, the company provided ‘charity care and uninsured discounts’ of approximately $370 million compared with $322 million in the year-ago quarter.

Coming to behavioral hospitals, same facility revenues improved 2.7% in the quarter. Adjusted admissions increased 1.3% while adjusted patient days climbed 1.1% compared to the same quarter last year. Net revenue per adjusted admission inched up 1.2%, while net revenue per adjusted patient day was up 1.5% on a year-over-year basis.

Margin Details

Earnings before, lease and rental expense, depreciation and amortization, interest expense, and income taxes ("EBITDAR") expanded 150 basis points (bps) to 16.8% in the quarter.

Salaries, wages & benefits, as a percentage of revenues, expanded 20 bps to 47.7% in the reported quarter. Other operating expenses, as a percentage of revenues, inched up 10 bps to 24.8% on a year-over-year basis.

However, supplies expenses, as a percentage of revenues, contracted 20 bps to 10.7% Lease and rental expenses, as a percentage of revenues, declined 10 bps to 1% on a year-over-year basis.

On a same facility basis, operating margin at acute care hospitals decreased 60 bps to 14.7%. Operating margin at behavioral health care facilities contracted 140 bps to 26%. As a result, consolidated operating margin deteriorated 110 bps to 16.8% in the reported quarter.

Buyback Program

In Feb 2016, Universal Health announced a new share repurchase program worth $400 million, which raised the total authorization to $800 million. During second-quarter 2016, the company bought back 458,410 shares at an aggregate cost of $56.6 million.

In the last quarter, the company repurchased 235,352 shares at an aggregate cost of $29.1 million.

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Guidance

Universal Health narrowed the upper end of its full-year earnings guidance by almost 2%.

For the full year, the company expects earnings in the band of to $7.16 to $7.43 per diluted share, compared with the previously estimated range of $7.12 to $7.58.

Notably, this range raises the lower end of the previously guided range by approximately 1%.

Zacks Rank & Key Picks

Currently, Universal Health carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader medical sector are Intuitive Surgical Inc. ISRG, AngioDynamics Inc. ANGO and Glaukos Corporation GKOS. Notably, all the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here

Intuitive Surgical has a long-term expected earnings growth rate of approximately 26.7%. The stock represents an impressive one-year return of 11.35%.

AngioDynamics has a long-term expected earnings growth rate of 15.00%. The company posted a solid one-year return of almost 30%.

Glaukos Corporation recorded a stellar one-year return of almost 69.9 %. Notably, the company posted positive surprises in the past four quarters, the average being 110.93%.

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