Wells Fargo maintains UHS stock with $225 target post 1Q25 results

Published 29/04/2025, 11:08
Wells Fargo maintains UHS stock with $225 target post 1Q25 results

On Tuesday, Wells Fargo (NYSE:WFC) reiterated its Overweight rating on Universal Health Services (NYSE:UHS) with a consistent price target of $225.00. According to InvestingPro data, UHS currently appears undervalued, with 8 analysts recently revising their earnings estimates upward. The company’s first-quarter results for 2025 showed adjusted EBITDA less NCI at $598 million, marking a 13.8% year-over-year increase and surpassing both Wells Fargo’s and consensus estimates of $568 million and $569 million, respectively.

Revenue reached $4.10 billion, reflecting a 6.7% growth from the previous year, although it fell short of the expected $4.15 billion. The EBITDA margin improved to 14.6%, a 90 basis points increase year-over-year, which was higher than the anticipated 13.7%. The company maintains strong profitability metrics, with InvestingPro showing a healthy gross profit margin of 42.5% and an attractive P/E ratio of 10.3x. Salary, wages, and benefits (SWB) accounted for 47.6% of revenue, showing a slight decrease from the previous year and coming in lower than the projected 48.0%. Supply costs also saw a reduction, representing 9.8% of revenue, below the estimates of 10.5%.

The acute care segment reported revenue of $2.35 billion, a 7.5% year-over-year increase, but it did not meet the expected $2.37 billion. However, its adjusted EBITDA of $349 million represented a significant 17.4% increase from the previous year, exceeding the $308 million and $313 million estimates from Wells Fargo and consensus. The adjusted EBITDA margin for acute care was 14.9%, outperforming the estimated 13.0% and 13.2%.

In the behavioral health division, revenue grew by 5.5% year-over-year to $1.75 billion, which was below the estimated figures of $1.77 billion and $1.78 billion. The adjusted EBITDA for this segment was $389 million, a 5.7% increase year-over-year, yet it fell short of the $405 million and $399 million forecasts. The reported EBITDA margin remained flat year-over-year at 22.3%, below the anticipated 22.8% and 22.5%.

Same-store acute care services saw revenue growth of 6.5% year-over-year, driven by a 2.4% increase in adjusted admissions and a 2.5% rise in revenue per adjusted admission. The same-store length of stay decreased by 2.0%. In the same-store behavioral health services, revenue also grew by 5.5% year-over-year, with a 7.2% increase in revenue per adjusted admission despite a 1.6% decline in adjusted admissions.

Universal Health Services reported a corporate EBITDA of -$140 million and noted a decrease in cash flow from operations to $360 million, down from $396 million a year ago, attributing the decline to delays in accounts receivable collection. Capital expenditures rose to $239 million, and the company repurchased $181 million of shares during the quarter, continuing its aggressive share buyback program. InvestingPro analysis indicates strong cash flows that sufficiently cover interest payments, with an impressive Altman Z-Score of 3.88 suggesting robust financial health. As of March 31, 2025, UHS’s net debt stood at $4.52 billion, which is 2.0 times the last twelve months adjusted EBITDA and 1.9 times the midpoint of the 2025 guidance. For deeper insights into UHS’s financial position and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

In other recent news, Universal Health Services reported mixed results for the first quarter. The company’s earnings per share reached $4.80, surpassing the analyst consensus of $4.36. However, the revenue fell short of expectations, coming in at $4.1 billion against the anticipated $4.16 billion. Net income attributable to Universal Health Services increased to $316.7 million, compared to $261.8 million in the same quarter last year. Revenue saw a 6.7% year-over-year growth, driven by increases in the acute care and behavioral health segments. The company reported a 6.5% rise in same-facility revenue for acute care and a 5.5% increase for behavioral health. Additionally, Universal Health Services repurchased approximately 1 million shares at a total cost of $180.6 million during the quarter. Despite the earnings beat, the company did not provide specific guidance for the full year 2025.

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