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What's in Store for Universal Health (UHS) Q4 Earnings?

Zacks Equity Research
Consolidated Communications (CNSL) closed at $4.95 in the latest trading session, marking a +1.23% move from the prior day.

Universal Health Services, Inc. UHS is scheduled to release fourth-quarter 2018 results on Feb 27. In the last reported quarter, the company delivered a positive earnings surprise of nearly 11.5%.

The Zacks Consensus Estimate for earnings in the to-be-reported quarter is pegged at $2.35, reflecting year-over-year growth of 17.5%.

So, let’s see how things are shaping up for this announcement.

The company’s revenues have been growing consistently since 2013. This upside was driven by solid inorganic growth and strong performances by its segments — Acute Care and Behavioral Health. The top line witnessed a four-year (2013-17) CAGR of 9.3%. The same trend continued in the first nine months of 2018, with revenues rising 3.2% year over year. The company’s revenue growth is expected to continue from strong performances by its segments. Revenues are expected to be $2.73 billion, up 3.4% from the year-ago quarter.

Over the years, acquisitions played a key role in building Universal Health’s growth trajectory. During the first nine months of 2018, the company spent $108 million on purchasing The Danshell Group and a 109-bed behavioral health care facility in Gulfport, MS. Acquisitions made by the company must have led to higher beds, thus, leading to higher admissions and patient days in the to-be-reported quarter.

The company expects fourth-quarter results to be almost in line with the third quarter. EBITDA is likely to be around $378 million, which is the same as the reported figure in the third quarter of 2018.

United Health Services is expected to enjoy a free cash flow, which has been consistent over the past several quarters. This, in turn, creates good potential for active mergers and acquisitions.

The company is expected to continue with the share repurchase program in the fourth quarter of 2018.

However, the company’s costs are expected to escalate due to growth-related investments and operating costs. Higher expenses should also weigh on margins.

We expect United Health Services leverage to remain at elevated levels as it takes on debt to finance acquisitions.

What the Quantitative Model Predicts

Our proven model conclusively shows that Universal Health is likely to beat on earnings in the to-be-reported quarter. This is because the stock needs to have the right combination of a positive Earnings ESP as well as a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you can see below.

Earnings ESP: Universal Health has an Earnings ESP of +0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.35. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Universal Health currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, its Earnings ESP makes earnings surprise prediction inconclusive.

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

Stocks to Consider

Some stocks worth considering from the medical sector, with the perfect combination of elements to surpass estimates in the next releases, are as follows:

Constellation Pharmaceuticals, Inc. CNST is set to report fourth-quarter 2018 earnings performance on Feb 28. The stock has an Earnings ESP of +9.72% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amicus Therapeutics, Inc. FOLD is slated to release fourth-quarter earnings figures on Feb 28. This stock has an Earnings ESP of +10.07% and a Zacks Rank #3.

Aduro Biotech, Inc. ADRO has an Earnings ESP of +15.23%. This #2 Ranked company is scheduled to announce fourth-quarter financial numbers on Mar 7.

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