Tuesday, October 24, 2006

Calls of Note Part 2

- UBS is lowering estimates for United Surgical Partners (NASDAQ:USPI) to reflect a more conservative outlook going into 3Q results. Firm's 3QE EPS now $0.28 vs. $0.31 previously, FY'06E $1.15 vs. $1.18 and FY'07E $1.40 vs. $1.55 prior. Revised estimates now include the sale of partial ownership interest in Surgis centers to NFP hospital partners and low-single-digit s.s. rev growth at consolidated facilities.

Firm expects USPI will use the 3Q results call to reset LT expectations for s.s. rev growth from 9-12% to a range that is more likely to be in the mid-single digits. They also expect the company may be somewhat conservative in setting 2007 EPS guidance given the potential for a sale of Surgis assets in the near future.

With stock trading at ~ 18x revised $1.40 FY'07 EPS estimate, which includes more conservative growth projections (low to mid single digit s.s. revs) and no accretion from capital reinvestment accretion (expect FCF of $100m in '07E), they believe the potential resetting of expectations should be viewed positively, especially with the stock down nearly 40% from highs earlier this year.

Maintains Neutral and $29 tgt.

Notablecalls: Expect USPI stock to experience weakness in the coming days. Not a high conviction short, though.

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