NEW DIRECTIONAL CALL PLAYS
Universal Health Services - UHS - close: 132.11 change: +0.82
Stop Loss: 128.90
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 697 thousand
Entry on June -- at $---.--
Listed on June 18, 2015
Time Frame: 6 to 8 weeks, exit prior to Q2 earnings
New Positions: Yes, see below
The Affordable Care Act, a.k.a. Obamacare, has been a boon for the health insurance companies. Another industry that has profited from the ACA is hospitals. Stocks like UHS and HCA are outperforming the broader market.
The S&P 500 is up +3.0% year to date. UHS is up +18.7%.
According to the company's website, "Universal Health Services, Inc. (UHS) is one of the nation's largest and most respected healthcare management companies, operating through its subsidiaries, behavioral health facilities, acute care hospitals and ambulatory centers throughout the United States, the United Kingdom, Puerto Rico and the U.S. Virgin Islands. UHS was founded in 1978 by Alan B. Miller, Chairman and CEO, and today has more than 68,000 employees. UHS maintains one of the strongest balance sheets and is rated amongst the highest in the hospital services industry by Moody's and Standard & Poor's. This strong capital position has enabled the company to develop and acquire many new facilities over the past few years.
The UHS strategy is to build or purchase healthcare properties in rapidly-growing markets and create a strong franchise based on exceptional service and effective cost control. UHS owes its success to a responsive management style and to a service philosophy that is based on integrity, competence and compassion."
UHS owns and operates more than 235 acute care and behavioral health locations and surgery centers. Together they generated annual revenues of $8.0 billion in 2014.
Looking at the last couple of quarters the company's revenues have been improving. Their Q4 results were out on February 26th. Earnings were in-line with expectations at $1.51 per share. That's a +46% improvement from a year ago. Revenues were up +7.0% and above estimates at $2.26 billion.
The trend continued in the first quarter. UHS reported its Q1 results on April 27th. Earnings were up +30% to $1.78 per share. That was 21 cents better than expected. Revenues rose +10.9% to $2.38 billion, also above estimates.
In their earnings press release the company said, "The increased operating performance experienced at our acute care facilities during the first quarter of 2015, as compared to the comparable quarter in 2014, was due in part to continued improvement in general economic conditions as well as a decrease in the number of uninsured patients treated at our hospitals. The decrease in the number of uninsured patients treated at our acute care hospitals was due primarily to the favorable impact of the Affordable Care Act which includes the expansion of Medicaid in certain states in which we operate and the enrollment of patients in newly created commercial exchanges."
This trend should continue but there is a risk. The U.S. Supreme Court is currently mulling a decision on Obamacare subsidies. If they decide that the current structure of the law makes these subsidies illegal it could bring down the entire piece of legislation and that would hurt the healthcare industry. The major healthcare and hospital stocks could all drop if this were to occur.
Technically shares of UHS look very bullish with trend of higher lows and higher highs. The point & figure chart is bullish and forecasting at $147.00 target. On a short-term basis UHS is hovering just below resistance in the $132.50 area. Today's intraday high was $132.70. We are suggesting a trigger to buy calls at $132.75.
Plan on exiting prior to UHS' next earnings report in very late July or early August.
Trigger @ $132.75
- Suggested Positions -
Buy the OCT $140 CALL (UHS151016C140) current ask $5.10
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike