Is Universal Health Services Modestly Undervalued? A Comprehensive Valuation Analysis
With a daily gain of 1.68%, a 3-month gain of 4.27%, and an Earnings Per Share (EPS) (EPS) of 9.63, Universal Health Services Inc (NYSE:UHS) has been making waves in the stock market. This raises the question: is the stock modestly undervalued? In this article, we'll delve into a comprehensive valuation analysis of Universal Health Services to answer this question. Let's dive in!
Understanding Universal Health Services Inc (NYSE:UHS)
Universal Health Services Inc is a leading healthcare service provider, operating acute care hospitals, behavior health centers, surgical hospitals, ambulatory surgery centers, and radiation oncology centers. The company's operations are divided into two main segments: Acute Care Hospital Services and Behavioral Health Services. With a current stock price of $132.69 and a GF Value of $169.42, Universal Health Services Inc appears to be modestly undervalued.
An Overview of GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The stock is believed to be modestly undervalued when the share price is significantly below the GF Value Line. Conversely, if the stock price is significantly above the GF Value Line, the stock may be overvalued. Universal Health Services, with a market cap of $9.20 billion, is believed to be modestly undervalued at its current price of $132.69 per share.
Due to its relative undervaluation, the long-term return of Universal Health Services stock is likely to be higher than its business growth.
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Assessing Financial Strength
Financial strength is a critical factor in avoiding permanent capital loss. Universal Health Services has a cash-to-debt ratio of 0.02, ranking worse than 95.09% of 652 companies in the Healthcare Providers & Services industry. Based on this, GuruFocus ranks Universal Health Services's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Universal Health Services has been profitable for 10 years over the past 10 years. With an operating margin of 7.94%, it ranks better than 65.85% of 650 companies in the Healthcare Providers & Services industry. The average annual revenue growth of Universal Health Services is 12.4%, ranking better than 60.91% of 573 companies in the same industry. However, the 3-year average EBITDA growth is 3.3%, ranking worse than 61.22% of 526 companies in the industry.
ROIC vs WACC
A comparison of a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, Universal Health Services's ROIC has been 7.11, while its WACC came in at 8.57.
Conclusion
Overall, Universal Health Services (NYSE:UHS) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 61.22% of 526 companies in the Healthcare Providers & Services industry. To learn more about Universal Health Services stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
