Strong 1Q for Universal Health Services

Universal Health Services UHS reported solid first-quarter results and raised its outlook for 2008. We're revisiting our assumptions and expect to slightly increase our fair value estimate to account for modest adjustments to our profitability and revenue growth forecast. Revenue increased 8% from the prior-year quarter, fueled by solid growth in the acute-care and behavioral divisions. Better payer mix skewed toward managed-care patients drove solid acute-care pricing growth of 5.3%, and led to impressive profitability, as the firm employs a substantial amount of operating leverage in its business model. While the results are well ahead of our forecast, we don't believe the rapid growth in pricing is sustainable, and we expect profitability will pull back over the course of the year.