Universal Health Stock Down 26.6% in 6 Months: Should You Buy the Dip?

Universal Health Services, Inc. UHS shares have plummeted 26.6% in the past six months due to continued investor concerns regarding ongoing Medicaid reimbursement changes and rising expenses. The stock also underperformed the industry, sector and the S&P 500 Index. During this time, peers like Tenet Healthcare Corporation THC and HCA Healthcare, Inc. HCA declined 23.4% and 18.6%, respectively.

6-Month Price Performance: UHS, THC, HCA, Industry, Sector & S&P 500

Image Source: Zacks Investment Research

However, we believe the dip offers a massive buying opportunity, given UHS’ continued growth in pricing and admissions, coupled with expansion initiatives. Let’s delve deeper.

Tailwinds for Universal Health Services

The hospital management company continues to experience revenue growth in its Acute Care Hospital Services and Behavioral Health Care Services segments, driven by rising adjusted admissions and patient days. Adjusted admissions in the Acute Care segment grew 8.8% year over year in 2021, 5.7% in 2022, 6.5% in 2023, and 3.8% in 2024. Similarly, adjusted patient days in the Behavioral Health segment increased 0.6% in 2021, 1.1% in 2022, 1.7% in 2023, and 1.6% in 2024. Management expects net revenues between $17.020 billion and $17.364 billion, the mid-point of which indicates an improvement of 8.6% from the 2024 figure.

These trends underscore the growing demand for UHS services. To address this rising demand, the company strategically pursues acquisitions, which significantly contribute to its growth trajectory. The company’s strong financial foundation supports its expansion efforts. The company recently opened West Henderson Hospital in Las Vegas and expects to open Cedar Hill Medical Center in Washington, D.C., with expectations of positive EBITDA contributions in 2025.

UHS generated $1.3 billion in operating cash flow in 2023, reflecting a 27.3% year-over-year increase. In 2024, operating cash flow rose by an impressive 63% year over year. Moreover, the company’s long-term debt-to-capital ratio of 39.9% is substantially lower than the industry average of 84.4%, highlighting its efficient financial management.

UHS’ robust cash generation also bolsters its efforts to enhance shareholder value. In 2024, the company repurchased shares worth approximately $599 million. As of Dec. 31, 2024, UHS retained a remaining share repurchase capacity of around $824 million, demonstrating its commitment to returning value to shareholders.

UHS Earnings Estimates & Surprise History

The Zacks Consensus Estimate for 2025 adjusted earnings for UHS is currently pegged at $18.27 per share, indicating a 10% year-over-year surge. The same for 2026 indicates a further 10.8% growth. The estimates witnessed upward revisions over the past month. The consensus estimate for 2025 and 2026 revenues suggests 8.1% and 4.5% year-over-year growth, respectively.

See the Zacks Earnings Calendar to stay ahead of market-making news.

It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 15.5%.

Universal Health Stock is Inexpensive

The stock's forward earnings multiple of 9.34X is notably lower than its five-year median of 11.92X and the medical hospital industry average of 12.03X. When compared to other medical facility operators like Tenet Healthcareand HCA Healthcare — with forward 12-month P/E ratios of 10.39X and 12.82X, respectively — UHS stands out as a more affordable option. Additionally, the company boasts a Value Score of A, reinforcing its appeal to value-focused investors.

Image Source: Zacks Investment Research

UHS Stock: Buy the Stock Now

Universal Health’s continued segmental growth, coupled with expansion initiatives, signals its growth potential. Valuation metrics and optimistic earnings projections suggest it has more room to grow. Although there are some concerns regarding ongoing Medicaid reimbursement changes and higher expenses, we believe UHS’s strong fundamentals outweigh them.

With a blend of value, growth potential and higher admissions, Universal Health currently presents an attractive investment opportunity. The company carries a Zacks Rank #2 (Buy) at present and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Universal Health Services, Inc. (UHS) : Free Stock Analysis Report

Tenet Healthcare Corporation (THC) : Free Stock Analysis Report

HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research