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Universal Health Grows Inorganically, Rising Costs a Drag

Zacks Equity Research

Universal Health Services, Inc.'s UHS solid inorganic strategy positions it well for long-term growth. The acquisition of the adult services division of Cambian Group and Desert View Hospital in Nevada are worth a mention here.

The company’s top line has been growing consistently since 2006 except for 2012, driven primarily by solid inorganic growth and strong performance from both of its segments — Acute Care and Behavioral Health.

Its acute care platform has been delivering strong underwriting results consistently. The same trend continued in the first nine months of 2017 as well.

In addition, its behavioral platform has been performing well too. In fact, behavioral facility acquisitions help Universal Health win market share in the fast growing addiction and mental health disorder market. The segment continued to deliver strong results in the first nine months of 2017.

Month to date, shares of Universal Health have gained 5.6% while the industry has rallied 4.9%.


However, the stock is currently trading at a  trailing 12-month price-to-earnings ratio of 15.3, which is at its median range, the same compares unfavorably with the industry average of 14.9. This suggests that the stock is overvalued compared to its peers. 

In addition, the company’s high-debt level has been a concern over the last few years. This also led to a rise in interest expenses which has been putting pressure on its margins.

Another area of concern for the company is the increase in its operating expenses since 2013, which continued to rise in the first nine months of 2017. This also keeps weighing on the company’s bottom line.

Zacks Rank & Stocks to Consider

Universal Health currently has a Zacks Rank #3 (Hold).

Investors interested in the medical sector can consider some better-ranked stocks like Align Technology, Inc. ALGN, Amedisys, Inc. AMED and Cerus Corporation CERS. While Align Technology sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Align Technology delivered positive surprises in each of the last four quarters, with an average beat of 16.6%.

Amedisys delivered positive surprises in each of the last four quarters, with an average beat of 13.1%.

Cerus Corp delivered positive surprises in three of the last four quarters, with an average beat of 7.8%.

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