Community Health, Universal Health Ratings Slashed By KeyBanc's Gurda: Here's Why

In a report published Thursday, KeyBanc analyst Jason Gurda downgraded shares of Community Health Systems CYH and Universal Health Services, Inc. UHS to Sector Weight ratings from a previous Overweight rating.

Community Health: ‘Prudent To Get Out'

Gurda stated that it is "prudent to get out" ahead of what he believes to be a moderation of growth trends. The analyst also pointed out shares are trading at a "sizeable" premium to its historical levels.

Gurda is modeling a 12 percent year-over-year EBITDA growth in 2015 but beyond the current year, the analyst is expecting an expansion in the mid-single digits. 2015 growth is being driven by "temporary factors," including HMA synergies and increased reform benefits.

Finally, Gurda pointed out that the company faces "increasingly difficult" volume comps throughout the rest of the year and shares could react negatively if adjusted admissions growth does not remain positive.

Universal Health Services: Cannot Justify Further Upside

Gurda stated that "we cannot justify" further upside in the stock given the company's "relatively conservative" guidance that provides only the opportunity for "modest upside" to his 2015 earnings per share estimate of $6.59. In addition, the analyst argued that the double-digit acute care same-store revenue growth that was reported in three of the past four quarters is not sustainable and meaningful moderation is expected.

Gurda also added that Universal Health's comps will become "more difficult" beginning in the second quarter. As such, it is "prudent" for investors to wait for a better entry point ahead of "likely growth moderation" during the bottom half of 2015.