Universal Health Stock Dips 11%: Mixed Q1 Results, Cloudy Outlook

Universal Health Services (NYSE: UHS) reported worse-than-expected Q1 results, lagging earnings estimates significantly despite meeting top-line expectations.

Further, the company issued a cautionary note indicating the possibility of a reduction in its full-year outlook if the uncertainties facing the company persist in the coming months.

Investors were clearly disappointed. Consequentially, shares of the American provider of hospital and healthcare services gapped down over 12% in today’s trading session and are still down about 11%, so far.

Q1 Numbers

Revenues jumped 9.3% year-over-year to $3.29 billion and exceeded consensus estimates of $3.21 billion.

Despite strong revenue numbers, the company posted adjusted earnings of $2.15 per share, significantly missing analysts’ expectations of $2.46 per share. Further, it was lower than the previous year’s earnings of $2.44 per share.

Fiscal Year 2022 Outlook

Though the company did not make any changes to its previous guidance for FY2022 provided on Feb 24, it did add a note of caution for the shareholders.

The company stated that if the current uncertainties related to the COVID-19 pandemic, healthcare staffing shortage, and its negative impact on labor costs and behavioral health patient volumes persist, it may reduce its FY2022 expectations.

Management Commentary

During the earnings call, management cautioned that developments related to the COVID-19 pandemic could continue to materially affect financial performance during 2022.

Management stated, “Since the future volumes and severity of COVID-19 patients remain highly uncertain and subject to change, including potential increases in future COVID-19 patient volumes caused by new variants of the virus, as well as related pressures on staffing and wage rates, we are not able to fully quantify the impact that these factors will have on our future financial results.”

Wall Street’s Take

Consensus among analysts is a Hold based on three Buys, four Holds, and three Sell ratings assigned in the past three months. The average Universal Health price target of $163.67 implies 32.7% upside potential from current levels.

The Takeaway

The quarterly underperformance was attributable to uncertainty related to the COVID-19 impact and higher-than-expected labor costs due to a nationwide shortage of nurses and other clinical staff and support personnel.

As anticipated by the company, if the problems persist, the company may reduce its outlook in the coming months.

Hence, investors should keep a close watch and maintain a cautionary stance on the stock.

Discover new investment ideas with data you can trust.

Read full Disclaimer & Disclosure