Universal Health Services (UHS) Down 28.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Universal Health Services (UHS). Shares have lost about 28.4% 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 catalysts.

Universal Health's Q4 Earnings Surpass, Improve Y/Y

Universal Health Services delivered fourth-quarter 2019 adjusted earnings of $2.79 per share, beating the Zacks Consensus Estimate by 6.9%. Moreover, the bottom line increased 17.7% year over year on the back of higher revenues.

In the quarter under review, revenues increased 5.1% year over year to $2.9 billion and also exceeded the Zacks Consensus Estimate by 0.3%, backed by higher admissions and patient days.

Total operating expenses of $2.5 billion at the end of the fourth quarter increased 2.4% year over year due to higher salaries, wages and benefits, supplies expense, and depreciation and amortization expenses.

Segmental Update

Acute Care Hospitals:

Adjusted admissions and adjusted patient days rose 2.1% and 6%, respectively, from the prior-year quarter. Net revenues (on same-facility basis) climbed 7.9% in the fourth quarter, majorly aided by higher admissions and patient days.

Behavioral Hospitals:

On same-facility basis, adjusted admissions inched up 0.8% while adjusted patient days were up 0.9%, both on a year-over-year basis. Net revenues too were up 4.5% year over year on same-facility basis.

Financial Update

As of Dec 31, 2019, the company had cash and cash equivalents of $61.3 million, down 41.8% from the level at 2018 end.

Total assets were $11.6 billion as of Dec 31, 2019, up 3.6% from the 2018-end figure.

The company’s long-term debt came in at $3.9 billion, down 1% from the level at 2018 end.

For 2019, net cash provided by operating activities came in at $1.4 billion, up 12.8% year over year. This was on the back of improvement in net income plus/minus depreciation and amortization expense, stock-based compensation expense, provision for asset impairment and net gains on sale of assets and costs related to extinguishment of debt, favorable change in accrued and deferred income taxes as well as net favorable changes.

Buyback Program

In the fourth quarter, the company bought back shares worth $181.2 million.
In July 2019, the company’s board of directors increased its share buyback plan by $1 billion.

Full-Year Highlights

For 2019, the company’s net income came in at $9.13 per share, up 9.9% year over year.

Net revenues for 2019 were up 5.6% year over year to $11.4 billion.

2020 Guidance

Following fourth-quarter results, the company gave its 2020 outlook.

Net revenues for the current year are anticipated between $11.96 billion and $12.11 billion.

Adjusted EPS per share is expected in the band of $10.30-$11. Management projects capital expenditures between $775 million and $825 million.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Universal Health Services has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, 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 A. 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 this revision 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.