Solid 2007 for Universal Health Services

Universal Health Services UHS reported fourth-quarter and full-year results Thursday that met our expectations, and we're keeping our fair value estimate unchanged. Revenue for the year increased 13% from 2006, driven by solid admission and pricing growth in both divisions. Acute-care hospitals in operation for at least one year experienced admission growth of 4.3% and pricing growth of 3.3%. Same-store behavioral facilities posted solid year-over-year 4.1% admission growth and 3.1% pricing growth. We expect high-single-digit revenue growth in 2008, fueled by continuing same-facility gains and addition of new beds. Bad-debt expense in the fourth quarter came in at 8.7% of total revenue, compared with 9.4% in the previous quarter, a good sign for UHS. However, the firm's McAllen, Texas, hospital lost patients to a physician-owned competitor, which highlights our concern that doctor-owned hospitals will continue to take share from general acute-care operators.