Universal Health Services, Inc.’s UHS shares have gained 23.1% in the past three months compared with the industry’s 16.1% growth. It has also outperformed the broader Zacks Medical sector’s 4.9% rise and the S&P 500 Index’s 2.4% increase in the said time frame. The company has been benefiting on the back of strength in Acute Care Hospital Services and Behavioral Health Care Services segments coupled with a diversified treatment network and solid cash flows. It has a market cap of $15.7 billion.
Closing at $234.69 in the last trading session, the stock is just 3% below its 52-week high. Nevertheless, it is trading above its 50-day and 200-day moving averages, indicating solid upward momentum.
3-Month Price Performance
Image Source: Zacks Investment Research
Growth Drivers for UHS
Universal Health's revenues continue to benefit on the back of increased patient volumes in its Acute Care Hospital Services segment and improved patient days in the Behavioral Health Care Services unit. Admissions in its acute care hospitals advanced 3.9% year over year in the first half of 2024 while patient days in the behavioral health care facilities grew 2.1% year over year. Management estimates net revenues to be between $15.565 billion and $15.753 billion for 2024, the mid-point of which implies 9.6% growth from the 2023 figure.
The ongoing resumption of elective procedures deferred during the pandemic is expected to further elevate patient volumes and occupancy rates of healthcare facilities in the days ahead. As patient volumes are a crucial revenue driver for healthcare facility operators, this trend bodes well for Universal Health. Similarly, other such operators, such as HCA Healthcare, Inc. HCA and Tenet Healthcare Corporation THC, are also likely to reap the benefits of the abovementioned resumption.
Universal Health managed a comprehensive network of 359 inpatient and 48 outpatient facilities across 39 states, Washington D.C., the United Kingdom and Puerto Rico as of June 30, 2024. The rising prevalence of mental health conditions in the United States is anticipated to sustain the strong demand for the company’s behavioral health services, provided through its 332 inpatient behavioral healthcare facilities.
To bolster its market position, Universal Health focuses on introducing new services, enhancing existing ones, recruiting top-tier physicians and applying stringent financial and operational controls. These efforts enhance hospital profitability and service quality. Acquisitions are also part of the company’s strategy to enter new markets and enhance healthcare delivery.
Maintaining a robust financial base is crucial for supporting growth initiatives, a criterion that Universal Health meets with its strong cash reserves and cash-generating abilities. As of June 30, 2024, its cash and cash equivalents were up 7.8% from the 2023-end level. It generated $1.1 billion in operating cash flows in the first half of 2024, up 64.6% year over year . This cash-generating ability supports strategic investments and enables ongoing shareholder returns through regular dividends and share buybacks. Universal Health has maintained a steady dividend of 20 cents per share since 2019.
Estimate Revisions Favor Universal Health
Reflecting the positive sentiment around UHS, the Zacks Consensus Estimate for earnings per share has seen upward revisions. The consensus mark for 2024 earnings indicates a 51% year-over-year improvement while the estimate for 2025 earnings implies an increase of 9.7%. It beat earnings estimates in each of the last four quarters, with the average surprise being 14.58%. Moreover, the consensus mark for 2024 and 2025 revenues indicates 9.8% and 5.5% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Challenges for UHS’ Business
Universal Health is grappling with elevated operating costs, which increased 7.3% year over year in the first half of 2024 due to the higher salaries, wages and benefits, other operating expenses and supplies costs. The rising costs will pressurize margins in the days ahead. Moreover, the company's debt-laden balance sheet induces an increase in interest expenses. Interest expenses rose 2% year over year in the first half of 2024.
UHS’ Favorable Valuation
Universal Health is trading at a discount compared with the industry average. It presents a compelling investment opportunity with its attractive forward 12-month price-to-earnings ratio of 13.79X, lower than the industry average of 16.22X.
Image Source: Zacks Investment Research
Conclusion: Apt to Buy UHS Stock Now
Universal Health is experiencing significant revenue growth, driven by strength across its two segments, coupled with the resumption of elective procedures. It is well-positioned to benefit from increased healthcare demands through its extensive network of facilities and strategic expansions. Although challenges such as escalating operating costs and a high debt burden exist, Universal Health’s cash-generating ability and strategic initiatives underscore its potential for sustained growth, providing a compelling opportunity for investors to add the stock to their portfolio. Its improving profit estimates and favorable valuation inspire investor optimism.
UHS currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention.
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
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
