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Universal Health (UHS) Up 27.6% YTD: Will the Rally Continue?

Zacks Equity Research

Universal Health Services Inc.’s UHS shares have rallied 27.6% year to date, outperforming the industry's growth of 2.7% and the Zacks S&P 500 composite’s rise of 20.5%. Strong segmental performances and accretive acquisitions should continue to drive the stock.

The stock carries an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

Is the Bull Run Likely to Continue?

This Zacks Rank #3 (Hold) owner and operator of acute care hospitals, outpatient facilities and behavioral health care facilities has a decent track record of delivering a positive earnings surprise in all the last four quarters, the average being 4.46%.

Its return on equity — a profitability measure — stands at 16.4% against its industry's negative average of 2709%.

The company is poised to grow its earnings on the back of a solid inorganic growth profile and strong segmental performances from both Acute Care and Behavioral Health. Its revenues have been consistently rising since 2010 and the trend continued in the first half of 2019 as well.

Licensed beds at both segments on average have been increasing, which in turn, is consistently pushing up Universal Health’s revenues. We expect the revenue base to continue burgeoning owing to inorganic initiatives as well as segmental contributions.

Over the years, acquisitions have played a key role in building Universal Health’s growth trajectory by adding facilities, bed and hospital to its business portfolio. We believe, the company will steadily pursue acquisitions that will help it expand its domestic and international presence along with cementing its position to weather the regulatory uncertainties in the healthcare sector.

The company also deploys capital to enhance shareholder value on the back of its solid capital position. In the first half of 2019, it repurchased shares worth $445.6 million. The company’s board of directors recently added $1 billion to its current share buyback program. This, in turn, should instill investor confidence in the stock.

The Zacks Consensus Estimate for the company’s 2019 and 2020 earnings indicates an improvement of 7.2% and 7.7%, respectively, from the year-ago reported figures.

Stocks to Consider

Investors interested in the medical sector might take a look at some better-ranked stocks like HCA Healthcare, Inc. HCA, Molina Healthcare, Inc. MOH and Anthem, Inc ANTM.

HCA provides health care services. In the last four quarters, the company delivered average beat of 15.74%. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Molina offers Medicaid-related solutions to meet the healthcare needs of low-income families and individuals. In the trailing four quarters, the company’s average beat was 66.9%. The stock sports a Zacks Rank #1.

Anthem works as a health benefits company in the United States. In the last four quarters, the company pulled off average beat of 4.57%. The stock has a Zacks Rank of 2.

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Molina Healthcare, Inc (MOH) : Free Stock Analysis Report
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Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
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