Universal Health Services, Inc. (UHS Quick QuoteUHS - Free Report) is scheduled to release third-quarter 2024 results on Oct. 24, after the closing bell. The Zacks Consensus Estimate for earnings per share is pegged at $3.75, which indicates a 47.1% surge from the prior-year quarter’s number. Its quarterly performance is expected to have been driven by increased admissions, higher adjusted patient days and sustained demand for behavioral healthcare services. 

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However, the third-quarter earnings estimate has witnessed downward revisions over the past 60 days. Meanwhile, the Zacks Consensus Estimate for third-quarter revenues is $3.9 billion, indicating 9.7% growth from the year-ago quarter’s figure.

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Earnings Surprise History of UHS

Universal Health’s bottom line beat the consensus estimate in each of the trailing four quarters, with the average surprise being 14.58%. This is depicted in the figure below:

What Our Quantitative Model Unveils

Our proven model does not conclusively predict an earnings beat for Universal Health this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that’s not the case here, as you see below.

Earnings ESP: Universal Health has an Earnings ESP of -6.00%. This is because the Most Accurate Estimate is currently pegged at $3.53 per share, lower than the Zacks Consensus Estimate of $3.75. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Zacks Rank: UHS currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Factors Likely to Influence UHS’ Q3 Results

Universal Health's top line is likely to have been boosted by strong contributions from its Acute Care Hospital Services and Behavioral Health Care Services segments. The Acute Care Hospital Services unit is expected to have benefited from an increase in adjusted admissions and higher net revenue per adjusted admission. For healthcare facility operators, expanding patient volumes bode well since they contribute the most to overall revenues.

The Zacks Consensus Estimate for net revenues in this segment is pegged at $2.2 billion, indicating 8.1% year-over-year growth. We estimate the metric to witness 9% year-over-year growth. Our estimate for the unit’s same-facility adjusted admissions indicates 4.6% growth from the prior-year quarter. 

The Behavioral Health Care Services segment is likely to have been supported by sustained demand for mental health services as the prevalence of mental health issues among Americans continues. Additionally, the segment's performance is expected to have been aided by growth in adjusted patient days and revenue per adjusted patient day. 

The Zacks Consensus Estimate for net revenues in this segment is pegged at $1.7 billion, indicating an 11.1% increase from the prior-year quarter. We estimate the metric to improve 10.3% year over year. Our estimate for the unit’s adjusted patient days indicates a year-over-year increase of 2.8%.

However, Universal Health’s margins are likely to have faced pressure from rising overall expenses, particularly due to higher salaries, wages and benefits, as well as increased costs for supplies in the third quarter. We anticipate salaries, wages and benefits to increase 6.1% year over year, while supplies expenses are expected to escalate 7.5%.

UHS Stock’s Price Performance & Valuation

Universal Health’s shares have soared 89.4% in the past year compared with the industry’s 71.8% growth. It has also outperformed the broader Zacks Medical sector’s 15.7% rise and the S&P 500 Index’s 38.5% increase in the said time frame. In comparison with UHS, HCA Healthcare, Inc. (HCA Quick QuoteHCA - Free Report) , one of its peers, has gained 72.5% in the same time frame, while Acadia Healthcare Company, Inc. (ACHC Quick QuoteACHC - Free Report) has lost 30.7%.

One-Year Price Performance

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Now, let’s look at the value Universal Health offers investors at current levels.

The company is cheaply priced compared with the industry average. Currently, UHS is trading at 13.81X forward 12-months earnings, below the industry’s average of 16.29X.

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Assessing Universal Health’s Prospects

The resumption of deferred elective procedures is expected to further boost patient volumes and occupancy levels for Universal Health. The company’s extensive treatment network, along with launching new services, expanding existing ones, recruiting skilled physicians and applying strong financial and operational controls, improves the care services rendered and increases the profitability of hospitals. Its estimated earnings growth rate of 19% for the next five years compares favorably with the industry average of 14.8%. 

The company continues to reward shareholders with consistent dividend payments and share repurchases, underpinned by strong cash flows and operational resilience.

Conclusion

While Universal Health faces challenges such as an elevated operating expense level, the strong performance of its two segments makes it an appealing investment option at present. UHS’ relatively lower valuation compared with the industry further enhances its attractiveness as a buy.

The company has shown impressive price performance over the past year, reflecting investors’ confidence. No matter the outcome of its upcoming earnings report and the stock’s subsequent movement, it remains a solid long-term investment pick due to its extensive treatment network and solid cash-generating abilities.