Universal Health Services, Inc. UHS is poised well for growth on the back of its strategic initiatives and strong segmental contributions.
Although the company suffered muted business volumes due to the coronavirus breakout, it is now better-placed to weather the business loss.
Over the past 60 days, the company has witnessed its 2020 earnings estimates move 48.9% north.
Here we discuss the reasons for adding this currently Zacks Rank #1 (Strong Buy) company in your investment portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.
Although the first-quarter 2020 results suffered a pre-tax unrealized loss, second-quarter numbers benefited from lower costs and net revenue recognition related to various governmental stimulus programs aided results.
The company's segments, namely Acute Care and Behavioral Health have been strongly contributing to its performance over the past many years. The top line witnessed a 2010-2019 CAGR of 9.8%, led by solid segmental contributions, higher admissions and patient days. Although the same dipped marginally in the first six 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 since many years, pushing up the revenues.
Behavioral patient days returned close to pre-COVID levels by the middle of June to the month-end when the second wave of COVID hit hard.
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 2018 and 2019, the company spent a total of $110 million and $8 million on acquisitions. We believe that the company will continue making acquisitions that will help it expand its domestic and international presence along with positioning it better to overcome the regulatory uncertainties in the healthcare sector.
The company's balance sheet position also remains a positive. Its net debt is 32.5% of its capital, much lower than the industry’s average of 80.8%. Also, its times interest earned stands at 7.9X, much higher than the industry’s average of 2.9X. The company doesn’t have to repay a huge portion of its total debt load within a year. Thus, its financial flexibility looks 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 due to the current situation.
Its long-term growth rate is projected at 8%, higher than its industry's average of 7.7%.
The company also has a Value Score of A.
Back-tested results showed that stocks with a Value Score of A or B combined with a Zacks Rank of 1 or 2 (Buy) are the best investment bets.
Shares of the company have gained 45.7% in six months’ time compared with the industry's growth of 70.8%.
Notably, other companies in the same space like Community Health Systems, Inc. CYH, Acadia Healthcare Company Inc. ACHC and HCA Healthcare Inc. HCA have also rallied 71.4%, 113% and 75.3%, respectively, in the same time frame.
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Universal Health Services, Inc. (UHS) : Free Stock Analysis Report
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