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Why Is Universal Health Services (UHS) Down 5.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Universal Health Services (UHS). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Universal Health Services due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Universal Health Q2 Earnings Beat on Strong Segments

Universal Health Services reported second-quarter 2022 adjusted earnings of $2.20 per share, which outpaced the Zacks Consensus Estimate by 5.8%. However, the bottom line plunged 41.5% year over year.

The quarterly results were aided by sound contributions in its overall revenues from the Acute Care Hospital Services and Behavioral Health Care Services segments. The decline in COVID-related patient admissions at the acute care hospitals during April and May of this year was not offset by an equal increase of non-COVID patients. This, in turn, might have dampened the growth prospects of the Acute Care Hospital Services segment.

The performance of Universal Health was also hampered by escalating costs related to salaries, wages and benefits stemming from the shortage of nurses and other medical personnel, which continues to plague healthcare providers in the United States. This staffing scarcity had compelled UHS to curb patient volumes at its behavioral health care facilities.

Quarterly Operational Update

Net revenues grew 3.9% year over year to $3.3 billion in the second quarter. The top line beat the consensus mark by a whisker.

Total operating costs of $3.1 billion escalated 12% year over year in the quarter under review, mainly due to higher salaries, wages and benefits, other operating expenses, supplies expenses, depreciation and amortization.

Segmental Update

Acute Care Hospital Services

Adjusted patient days, on a same facility basis, improved 1.8% year over year in the second quarter, while adjusted admissions (adjusted for outpatient activity) dipped 0.7% year over year. Net revenues rose 3.3% year over year in the quarter on a same facility basis from UHS’s acute care services.

Behavioral Health Care Services

In the quarter under review, adjusted patient days on a same facility basis inched up 0.7% year over year. Meanwhile, adjusted admissions dipped 0.1% year over year. Net revenues stemming from Universal Health’s behavioral health care services increased 0.5% year over year.

Financial Update (as of Jun 30, 2022)

Universal Health exited the second quarter with cash and cash equivalents of $132.7 million, which climbed 15.1% from the 2021-end level.

UHS had nearly $1.1 billion of aggregate available borrowing capacity under its $1.2-billion revolving credit facility, net of outstanding borrowings and letters of credit at the end of the second quarter.

Total assets of $13.3 billion increased 1.5% from the level at the 2021 end.

Long-term debt amounted to $4.6 billion, up 11% from the figure as of Dec 31, 2021.

Total equity slipped 4.7% from the 2021-end level to $5.9 billion.

During the six months ended Jun 30, 2022, net cash provided by operating activities increased four-fold from the prior-year comparable period to $478 million.

Share Repurchase Update

Universal Health bought back roughly 1.61 million shares worth around $195.6 million. As of Jun 30, 2022, UHS had $1.2 billion left under its total repurchase authorization.

2022 Guidance

On Jun 30, 2022, Universal Health updated its 2022 outlook due to significant drawbacks in operations suffered in the first two months of the second quarter.

Management anticipated net revenues to be $13.235-$13.371 billion for this year, lower than the previous estimate of $13.424-$13.694 billion. The mid-point of the revised guidance suggested 5.2% growth from the 2021 figure.

Adjusted EBITDA was estimated within $1.635-$1.712 billion, down from the earlier estimate of $1.830-$1.927 billion. The mid-point of the revised guidance indicated a 11.9% decline from the reported figure of 2021.

UHS expected adjusted earnings per share (EPS) for this year in the range of $9.60 to $10.40, down from the prior projection of $11.90-$12.90. The mid-point of the revised guidance indicated a 15.4% decline from the 2021 reported figure.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -5.43% due to these changes.

VGM Scores

Currently, Universal Health Services has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Universal Health Services has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Universal Health Services is part of the Zacks Medical - Hospital industry. Over the past month, HCA Healthcare (HCA), a stock from the same industry, has gained 3.1%. The company reported its results for the quarter ended June 2022 more than a month ago.

HCA reported revenues of $14.82 billion in the last reported quarter, representing a year-over-year change of +2.7%. EPS of $4.21 for the same period compares with $4.37 a year ago.

HCA is expected to post earnings of $4.01 per share for the current quarter, representing a year-over-year change of -12.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.8%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for HCA. Also, the stock has a VGM Score of B.


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