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United Health (UHS): What's in Store this Earnings Season?

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Universal Health Services Inc. (UHS - Free Report) is set to report third-quarter fiscal 2016 results on Oct 26, after the closing bell.

Last quarter, the company reported earnings of $1.94 per share, in line with the Zacks Consensus Estimate. Meanwhile, the figure improved 4.9% on a year-over-year basis.

We note that, Universal Health has an average positive earnings surprise of 0.53% for the trailing four quarters.

Let’s see how things are shaping up prior to this announcement.

UNIVL HLTH SVCS Price and EPS Surprise

 

UNIVL HLTH SVCS Price and EPS Surprise | UNIVL HLTH SVCS Quote

Factors at Play

The company’s acquisition of Desert View Regional Medical Center, a Nevada-based twenty-five bed community care hospital of Rural Health Group (RHG), is a major catalyst in our view.

We believe the Desert View integration will fortify Universal Health’s footprint in Nevada where it already has Northern Nevada Medical Center and six acute-care operating wings in Las Vegas. As per management, this acquisition will not only strengthen Universal Health’s acute-care business in the existing markets but will also pave a way for the opening of a new 142-bed hospital in Henderson, later this year (scheduled to open in the fourth quarter of this fiscal).

On the flip side, weak behavioral volumes are likely to be a drag on revenues. In fact, during the last reported quarter (second quarter of fiscal 2016), adjusted admissions to behavioral health facilities decreased 0.3% on a year-over-year basis.

Additionally, since the third quarter of last fiscal, the company has been witnessing a shortage in clinicians, psychiatrists and nurses that has hampered its abilities in certain facilities.

Earnings Whispers

Our proven model does not conclusively show that Universal Health is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Universal Health currently has a negative Earnings ESP of 4.79%. This is because the Most Accurate estimate is pegged at $1.59 while the Zacks Consensus Estimate is $1.67.

Zacks Rank: Universal Health carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s -4.79% ESP makes surprise prediction difficult.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks to Consider

Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Ariad Pharmaceuticals Inc. , with an Earnings ESP of +5.26% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. Additionally, the stock represents a stellar one-year return of 52.7%.

Exelixis Inc. (EXEL - Free Report) , with an Earnings ESP of +7.69% and a Zacks Rank #1. Notably, the company has a stupendous one-year return of 99.7%.

Glaukos Corporation (GKOS - Free Report) has an Earnings ESP of +200.00% and a Zacks Rank #1. We note that the company represents an impressive one-year return of 58.83%.

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