Universal Health Services Stock Sinks on Weak Earnings. Blame Covid-19.

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“The nationwide shortage of nurses and other clinical staff and support personnel has been a significant operating issue facing us,” Universal Health Services said. Mario Tama/Getty Images

Shares of Universal Health Services sank Tuesday after Monday’s earnings report fell short of Wall Street expectations due to higher labor costs and wages as the healthcare sector struggles to find workers.

The hospital- and healthcare-services provider said that salaries, wages, and benefits rose 13% to $1.69 billion from $1.5 billion last year. Other operating expenses rose 16% to $820.9 million.

Universal stock (ticker: UHS) was down 9.8%, at $125.20, in recent trading. On Monday, shares dropped as much as 12% after hours and have fallen 3.4% year to date. The Dow Jones Industrial Average was down 1.3% in recent trading and has fallen 7.5% year to date.

Revenue rose 9% to $3.29 billion from $3.01 billion from last year. Analysts were looking for $3.24 billion, according to FactSet.

Net income was $153.9 million, or $2.02 a share, compared with $209.1 million, or $2.43 a share, last year. Adjusted earnings were $2.15 a share, compared with $2.44 a share a year ago.

Broadly, the healthcare industry has struggled with labor shortages post Covid-19 due to exhaustion and burnout. About 20% of healthcare workers quit their jobs during the pandemic, and it’s becoming especially difficult to find workers in rural and economically distressed urban areas.

The Health Care Select Sector SPDR exchange-traded fund (XLV) is down 4.8% this year, on pace for its worst year since 2008, when it fell 24.8%, according to Dow Jones Markets data. Other healthcare-based funds are also down. The iShares US Healthcare ETF (IYH) is down 6.4%, also on pace for its worst year since 2008, when it fell 24.0%, according to the same data.

“The nationwide shortage of nurses and other clinical staff and personal support has been a significant operating issue facing us and other healthcare providers,” the company said.

Analysts expressed concern regarding the long-term implications of labor shortages on the company’s margins.

Bank of America analysts reiterated their Underperform rating Tuesday with a price target of $137 from $147. “While not changing the guidance with this release, Universal Health Services indicated that cuts would be necessary if the Q1 labor pressures persist,” the analysts wrote in a research note. “We are lowering our estimates for the miss and lowering PO [price objective] to $137 on the lower estimate and a lower multiple (8.3x vs 8.4x prior) given risks to the estimates.”

Write to Logan Moore at [email protected].

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