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Universal Health Services, Inc. UHS has been favored by investors owing to its strategic measures and strong segmental contributions.
Over the past seven days, the company has witnessed its 2022 earnings estimate move 4.4% north.
Its favorable VGM Score of A is a testament to the same. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.
The company’s earnings beat estimates in the trailing three quarters and missed the same once. It has a trailing four-quarter earnings surprise of 124.02%, on average.
Here we discuss the reasons for retaining this currently Zacks Rank #3 (Hold) company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Universal Health reported fourth-quarter 2020 adjusted earnings of $3.59 per share, which surpassed the Zacks Consensus Estimate by 24.7%. Further, the bottom line improved 28.7% year over year. The company’s results reflect higher revenues, partly offset by escalating costs.
Most hospital companies suffered declining admissions due to the COVID-19 pandemic. There were regulations to abide by, which not only affected revenues but also flared up expenses. However, Universal Health took several measures to sail through the troubled phase. It is impressive to see that its performance bounced back.
Both segments contributed to the company’s growth over the years. Its revenues have been growing since 2010. During 2020, net revenues grew 1.6% year over year, particularly owing to higher revenues reported across both the company’s segments. In 2020, Universal Health instated 439 beds at its acute care and behavioral health hospitals.
The company’s series of activities impresses. In 2020, it inaugurated three Freestanding Emergency Departments (FEDs) with a plan to open another five in 2022. This will bring the company’s total number of FEDs to 22. Over the years, acquisitions have played a key role in building Universal Health’s growth trajectory by adding facilities, beds and hospitals to its business portfolio. In 2020, it spent $52 million on the acquisition of businesses and property. We believe that the company will continue making acquisitions that will help it expand its domestic and international presence along with bettering its position to weather the regulatory uncertainties in the healthcare sector.
Acute care is a branch of secondary healthcare wherein a patient receives short-term treatment for urgent medical conditions. Since 2012, the average number of licensed beds in the acute care hospitals has been growing, pushing up the revenues. In 2020, net revenues from this segment rose 3% year over year. We are optimistic about the segment’s future performance once things return to normalcy.
Last year, we witnessed a significant rise in demand within the behavioural health sector. People are suffering from depression, anxiety and substance abuse due to unemployment, financial turmoil, etc. Universal Health focuses on behavioral indications like eating disorders, sexual trauma, autism as well as disorderliness in the military through its patriot support program. Though the segment’s patient days were affected in light of the suspended elective and scheduled procedures, the company left no stone unturned to boost its behavioral health portfolio through joint ventures.
Universal Health's balance sheet position also remains a positive. The company’s total debt-to-total capital ratio as of Dec 31, 2020 came in at 37.9, which is not only lower than 42 as of Dec 31 2019 but also compares favorably with the industry’s figure of 89.6. Also, its times interest earned stands at 12.8X, much higher than the industry’s average of 3.6X.
As of Dec 31, 2020, it had cash and cash equivalents of $1.2 billion and slightly more than $1.2 billion of aggregate available borrowing capacity, higher than the current portions of long-term debt of $332 million. The company doesn’t have to repay a huge portion of its total debt load within a year. Thus, its financial flexibility is impressive.
However, steep increase in operating expenses has been a major concern for the company since 2013. The same trend followed in 2020 as well wherein operating expenses inched up 0.4% from the level at 2019 end and accounted for 88.2% of its total revenue stream. This too remains a big challenge for the company.
Shares of the company have gained 11.6% in six months’ time, underperforming its industry's growth of 31.2%.
Notably, other companies in the same space including Community Health Systems, Inc. CYH, Acadia Healthcare Company Inc. ACHC and HCA Healthcare Inc. HCA have also rallied 68.1%, 84.6% and 28.1%, respectively, in the same time frame.
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