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Why Is Universal Health Services (UHS) Up 0.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Universal Health Services (UHS). Shares have added about 0.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Universal Health Services due for a pullback? 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, Revenues Down Y/Y

Universal Health reported second-quarter 2020 adjusted earnings of $2.93 per share, which outpaced the Zacks Consensus Estimate by 463.5%. The bottom line also improved 6.2% year over year.

Lower costs and net revenue recognition of around $218 million related with various governmental stimulus programs benefited the results.

Quarterly Operational Update

Net revenues declined 4.4% year over year to $2.7 billion. The downside can primarily be attributable to significant reduction in patient volumes at the company’s acute care and behavioural health care facilities in April on account of the COVID-19 pandemic. Nevertheless, patient volumes have somewhat recovered in May and June due to easing of stay-at-home restrictions. Moreover, net revenues outpaced the Zacks Consensus Estimate by 12.4%.

Total operating expenses of $2.4 billion at the end of the second quarter declined 5.5% year over year, primarily due to lower salaries, wages and benefits, other operating expenses, and supplies expense.

Segment Update

Acute Care Hospitals

Adjusted admissions and adjusted patient days were down 24.8% and 18.1%, respectively, from the prior-year quarter. Net revenues (on a same facility basis) decreased 3.5% year over year, including government stimulus revenues of around $157 million.

Behavioral Hospital

On same-facility basis, adjusted admissions and adjusted patient days were down 15.4% and 10.4%, respectively, on a year-over-year basis. Net revenues were down 3.8% during the quarter under review on same-facility basis, including government stimulus revenues of around $61 million.

Financial Update

As of Jun 30, 2020, the company had cash and cash equivalents of nearly $539.6 million, up 780.8% from the year-end 2019-level.

Total assets were $12.1 billion as of Jun 30, 2020, up 4.1% from the figure as of 2019 end.

The company’s long-term debt was $ 3.4 billion, down 11.5% from the figure as of Dec 31, 2019.

In the first half of 2020, net cash provided by operating activities totaled $1.5 billion, which soared 115.8% year over year. This can primarily be attributed to favourable change arising from the Medicare accelerated payments and deferred governmental stimulus grants, favorable change in accounts receivable and favorable change in accrued and deferred income taxes.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 52.25% due to these changes.

VGM Scores

Currently, Universal Health Services has a nice Growth Score of B, a grade with the same score on the momentum front. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Universal Health Services has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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