Universal Health Services Inc. (NYSE:UHS) gained nearly 2% in pre-market Tuesday following a rating upgrade by Wells Fargo analysts.
Analysts upgraded the rating from Equal Weight to Overweight and concurrently raised the price target to an optimistic $177 from $144. The commendation was echoed by Citi, reaffirming UHS as a top pick for 2024.
Analyst moves came after UHS disclosed today that the managed Medicaid segment of the Nevada SDP program, scheduled to commence on January 1, 2024, is expected to contribute approximately $140 million in Medicaid reimbursement for the upcoming year, after accounting for provider taxes.
Analysts highlighted the attractiveness of hospital fundamentals, anticipating their continued appeal. Moreover, they expressed confidence in the resilience of distributor fundamentals.
“Managed Care group performance in 2023 was poor. Entering the year at elevated valuations created a difficult setup, fundamental pressure from MA utilization / rates emerged, and PBM scrutiny intensified. Valuations are now generally closer to first quartile levels,” analysts wrote in a note.
Addressing concerns about Medicaid impact on margins, analysts noted a gradual and orderly effect, even as the enrollment impact of redeterminations seemed more front-end loaded than initially expected.
Citi, maintaining its buy rating, set a $170 target price for UHS, emphasizing its position as a Top Pick for 2024. The approval of the Medicaid portion in the Nevada SDP program further added to the positive outlook.
Analysts, led by Jason Cassorla, emphasized the program's potential to fuel a high-single-digit EBITDA growth for 2024, particularly when combined with the recent MS Hospital Access Program's contribution of $30-40 million.
The approval of the program is seen as reinforcing UHS's growth trajectory from a relatively low baseline. Despite anticipated challenges in 2024, this strategic move positions UHS for continued expansion and success.