Universal Health Services, Inc.’s UHS shares have surged 45.6% in the past year compared with the industry’s 28.7% growth. It has also outperformed the broader Zacks Medical sector’s 5.4% growth and the S&P 500’s 32.8% increase in the said time frame.
The company has been benefiting on the back of strong segmental contributions, increased patient days, a diversified treatment network and robust cash flows. Closing at $198.34 in the last trading session, the stock has a market cap of $13.1 billion.
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Growth Drivers for UHS
Universal Health continues to thrive, driven by robust performance in its Acute Care Hospital Services and Behavioral Health Care Services segments. This success is supported by a diverse treatment network and strong cash flows. Revenue growth has been fueled by increased patient volumes and higher patient days. In the first nine months of 2024, adjusted admissions in acute care hospitals rose 3.1% year over year on a same-facility basis, while adjusted patient days at behavioral health facilities inched up 1.7%.
Management forecasts net revenues for 2024 to range between $15.565 billion and $15.753 billion, the midpoint of which indicates growth of 9.6% compared with the 2023 figure.
The resumption of elective procedures, postponed during the pandemic, is expected to enhance patient volumes and occupancy rates. This resurgence is a significant revenue driver for healthcare operators. In addition to UHS, HCA Healthcare, Inc. HCA, Tenet Healthcare Corporation THC and Community Health Systems, Inc. CYH will reap the benefits of this resumption.
UHS’ inpatient behavioral healthcare facilities remain pivotal in addressing the rising prevalence of mental health issues across the United States. As of Sept. 30, 2024, UHS operated 361 inpatient and 49 outpatient and other facilities across 39 states, Washington D.C., the U.K. and Puerto Rico. The company remains committed to expanding its services, enhancing offerings, attracting top medical professionals and implementing rigorous financial and operational controls. These efforts contribute to improved service quality and profitability.
A solid financial foundation underpins UHS’ growth initiatives. As of Sept. 30, 2024, cash and cash equivalents were $106.1 million. Operating cash flows in the first nine months of 2024 totaled $1.4 billion, which soared 72.8% from the prior-year comparable period. This financial strength also supports shareholder returns through consistent dividends and share repurchases. UHS has maintained a steady dividend of 20 cents per share since 2019.
Robust Growth Prospects for Universal Health
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $15.88 per share, indicating year-over-year growth of 50.7%. The estimate for 2025 earnings implies a year-over-year increase of 11.4%. It beat earnings estimates in three of the last four quarters and missed the mark once, the average surprise being 12.07%. Moreover, the consensus mark for 2024 and 2025 revenues indicates 9.8% and 6% year-over-year growth, respectively.
Universal Health Services, Inc. Price and EPS Surprise
Universal Health Services, Inc. price-eps-surprise | Universal Health Services, Inc. Quote
Challenges for UHS’ Business
Universal Health is grappling with rising operating expenses, which escalated 7.9% year over year during the first nine months of 2024. This increase resulted from higher costs for salaries, wages, benefits and other operating expenses. The persistent escalation in these expenses is likely to pressure profit margins in the future. Furthermore, the company's heavily leveraged balance sheet induces an increase in interest expenses.
Universal Health’s Valuation
From a valuation perspective, Universal Health looks attractive. It is currently trading at a forward 12-month price/earnings (P/E) of 11.28X, a roughly 13% discount compared with the industry average of 12.88X.
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Conclusion
Universal Health is experiencing growth driven by strong patient volumes, an increase in patient days and the resumption of elective procedures. Its diverse treatment network, emphasis on service expansion and healthy cash flows contribute to its growth trajectory and support shareholder returns. However, the company faces challenges, including rising operating expenses and a substantial debt load. While UHS is currently undervalued despite increasing share prices, investors are probably better off not buying the stock right now and waiting for a more favorable entry point. Those who already own the stock should hold on to it.
UHS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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