ACHC | Despite Negative UHS Announcement, We Remain Long ACHC
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Ticker/Company: UHS (as it relates to) ACHC Headline: UHS Provides Update on 2Q22 Operating Results & Revises FY22 Guidance (6/30/22) Summary: UHS pre-announced negative this morning (details in Morning Brief), calling out non-COVID volume that failed to back fill the decline in COVID admissions. They also commented that labor costs have improved "somewhat more slowly." We've been positive on HCA, but UHS is going to be a problem for the shares and our outlook here. We will back fill with the same analysis we've completed for HCA's individual facilities for UHS facilities to see if we could have seen the shortfall and as a way to test the validity of our HCA view that's detailed in the charts in the Health Care Presentation. |
Background
UHS Behavioral struggled in 1Q22 immensely, as the labor situation continued to create difficulties in finding "sufficient clinical staff" to offer premium wages that they described in 4Q21 (only payed $25-30MM for FY21). As a result, their admissions declined 2.9%, and at the time, they expected the labor situation to continue to be extremely difficult going forward.
ACHC, on the other hand, did not identify significant headwinds in sourcing staff and managed to offset their premium pay and temporary staffing with one- off programs, allowing them to maintain their SWB margin at historic levels. As a result, they only opened 28 new organic beds to existing facilities in 1Q22, but admissions grew 2.3% in the quarter. Additionally, ACHC remarked that the staffing landscape "tough, but manageable," and that they expected it to begin to mitigate in 2H22. Based on the stark differences in narratives, we received client pushback that UHS Behavioral may not be a good comp for ACHC despite similar business strategies.
We have pointed a number of signs of labor pressure easing prior to the start of 2H22 throughout the past few months. We believe that the early onset of this easing, paired with the meaningfully positive trend in hiring from the ACHC Locations Tracker in May will be a tailwind for ACHC organic growth in 2Q22.
Thesis Update
Following this updated from UHS, we remain actively long ACHC and will be updating our provider tracker in the coming days. At the current pace, we expect a solid 2Q22 from ACHC that will prove to be better than UHS's "shortfalls from internal expectations experienced within our behavioral health segment were relatively consistent with those experienced during Q1 of 2022."
Key Slides
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