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Universal Health Services, Inc. UHS has been in investors’ good books, courtesy of strategic measures and strong segmental contributions.
Over the past seven days, the company has witnessed its 2021 earnings estimate move 0.4% 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.
Notably, most hospital companies bore the brunt of the pandemic-led business loss and Universal Health was no exception. The company suffered muted business volumes due to the COVID-19 breakout.
However, good news is that it has been recovering and is now poised well for growth.
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 119.6%, 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.
The company's segments, namely Acute Care and Behavioral Health, have been contributing to its performance over the past several years.
The top line witnessed a CAGR of 9.8% over the 2010-2019 period, led by solid segmental contributions, higher admissions and patient days. Although the same dipped marginally in the first nine months of 2020 due to the coronavirus impact, we expect the metric to bounce back post the pandemic.
Average licensed beds at Acute Care and Behavorial platform have been rising over the past several years and in turn, driving revenues. Although the Behavorial business declined in the first nine months of 2020, we are hopeful that it will recover soon on the back of surging demand and strategic measures.
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 the first nine months of 2020, it spent $52 million on the acquisition of businesses and property, consisting primarily of the real estate and other assets of a hospital located in Nevada.
We believe, the company will continue making acquisitions that will help it expand domestic and international presence, and position it better to weather the regulatory uncertainties in the healthcare sector.
The company's balance sheet position also remains a positive. Its net debt is 26.3% of capital, much lower than the industry’s average of 74.5%. Also, its times interest earned stands at 10.3X, much higher than the industry’s average of 3.1X. As of Sep 30, 2020, it had cash and cash equivalents of $1.1 billion and $1.45 billion of aggregate available borrowing capacity, higher than the current portions of its long-term debt of $94 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, the company withdrew its 2020 outlook, given the current unprecedented environment. This remains a concern for investors. Moreover, it suspended its share buyback program and dividend payout amid the continued economic volatility.
Shares of the company have gained 60.8% in six months’ time compared with the industry's rally of 82.7%.
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 soared 177.7%, 120% and 84%, respectively, in the same time frame.
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Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
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