It has been about a month since the last earnings report for Universal Health Services (
UHS Quick Quote UHS - Free Report) . Shares have lost about 7.7% 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 the most recent earnings report in order to get a better handle on the important drivers.
Universal Health Q2 Earnings Beat, Boosts '23 EPS View
Universal Health reported second-quarter 2023 adjusted earnings per share (EPS) of $2.53, which beat the Zacks Consensus Estimate by 2%. The bottom line climbed 15% year over year.
Net revenues amounted to $3,548 million, which rose 6.8% year over year in the quarter under review. The top line outpaced the consensus mark by 1.3%. The strong quarterly results of UHS were supported by a growing patient base at its acute care and behavioral health care facilities, which led to strong segmental contributions. Higher adjusted patient days also provided an impetus to the results. However, the upside was partly offset by escalating salaries, wages and benefits expense. Quarterly Operational Update
Adjusted earnings before interest, taxes, depreciation & amortization (EBITDA), net of net income attributable to noncontrolling interests (NCI), improved 11.3% year over year to $425.9 million in the second quarter, higher than our estimate of $401.8 million. The metric does not consider the impact of other (income) expenses, net.
Total operating costs of $3,268 million increased 5.8% year over year due to higher salaries, wages and benefits, other operating expenses, supplies costs and, lease and rental expenses.
Segmental Update Acute Care Hospital Services
In the second quarter, adjusted admissions (adjusted for outpatient activity) advanced 7.7% year over year on a same-facility basis. Adjusted patient days rose 6.9% year over year. Net revenues stemming from Universal Health’s acute care services improved 9.7% year over year on a same-facility basis.
Behavioral Health Care Services
Adjusted admissions grew 3.3% year over year on a same-facility basis in the quarter under review. Our estimate indicated the metric to witness 5.4% year-over-year growth. Meanwhile, adjusted patient days inched up 1.5% year over year. On a same-facility basis, net revenues derived from the behavioral healthcare services of UHS increased 7.8% year over year.
Financial Update (as of Jun 30, 2023)
Universal Health exited the second quarter with cash and cash equivalents of $79.5 million, which plunged 22.7% from the level at 2022 end.
As part of the $1.2 billion revolving credit facility of UHS, net of outstanding borrowings and letters of credit, there remains an aggregate available borrowing capacity of $946 million at the second-quarter end. Total assets of $13,732.3 million increased 1.8% from the 2022-end figure. Long-term debt amounted to $4,605.1 million, which declined 2.6% from the figure as of Dec 31, 2022. Short-term debt totaled $111.4 million. Total equity increased 2.7% from the 2022-end level to $6,128.8 million. In the first half of 2023, UHS generated cash flows from operations of $653.7 million, which climbed 36.7% from the prior-year comparable period. The growth came on the back of favorable other working capital accounts. Share Repurchase Update
Universal Health bought back shares worth roughly $113.4 million in the second quarter. It had a leftover repurchase capacity of around $755 million as of Jun 30, 2023.
2023 Guidance Revised
On the basis of the financial performance observed in the first half of 2023, management hiked the lower end of its 2023 outlook range for certain metrics.
Management presently forecasts net revenues to be between $14,130 million and $14,330 million for this year, compared with the earlier range of $14,044-$14,314 million. The midpoint of the revised outlook implies 6.2% growth from the 2022 reported figure. Adjusted EBITDA, net of NCI, is estimated within $1,696-$1,756 million, compared with the previous view of $1,662-$1,753 million. The midpoint of the updated guidance suggests 3.9% improvement from the 2022 figure. UHS projects adjusted EPS in the range of $9.85-$10.50, compared with the prior view of $9.50-$10.50 for 2023. The midpoint of the revised forecast indicates a rise of 3% from the 2022 figure. Depreciation and amortization are currently anticipated at $584.7 million. Interest expenses are estimated at around $199 million. Earlier, capital expenditures were expected within $725 million and $875 million for 2023. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Universal Health Services has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Universal Health Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.