Why Should You Hold Universal Health (UHS) in Your Portfolio?
Riding high on strategic measures and a solid solvency level, Universal Health (UHS) holds prospects to reap benefits for investors.
Universal Health Services, Inc. UHS is well poised to grow on the back of accretive acquisitions, healthy top line and a robust performance of its behavioral health hospitals.
The hospital company has a market cap of $10.5 billion and owns acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers and radiation oncology centers.
UHS beat on earnings thrice and missed the mark once in the last four quarters, the average surprise being 17.6%. Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
What’s Driving the Stock?
The hospital organization is steadily gaining from solid volumes and its acute care and behavioral health care facilities. Its top line witnessed a 2010-2020 CAGR of 5.5%, led by solid segmental contributions, higher admissions and patient days. In the first nine months of 2021, the same further increased 10.6% year over year.
This leading player in the hospital industry also boasts a strong inorganic growth story. In the last reported quarter, UHS opened 157 beds in Las Vegas and even acquired 88 beds through the takeover of the Las Vegas specialty hospital.
Universal Health purchased a LEED Medical Center micro hospital offering emergency and inpatient care adjacent to the Las Vegas Strip. In 2020, UHS instated 439 beds at its acute care and behavioral health hospitals. We believe that UHS will continue making acquisitions that will help it expand its domestic and international presence.
UHS continuously benefits from its Acute Care segment. Since 2012, the average number of licensed beds in acute care hospitals has been growing, pushing up the revenues. In fact, global market sentiments for acute care treatments are quite upbeat with North America accounting for the largest share in the space. In 2020 and during the first nine months of 2021, net revenues from this segment rose 3% and 18.6%, respectively, year over year.
This hospital player's Behavioral platform is also pretty strong. Since 2012, average licensed beds in the behavioral health centers have been growing, contributing to the top line. During 2020 and in the first nine months of 2021, the same inched up 0.6% and 5.4% year over year, respectively. This segment holds ample opportunities.
UHS has an impressive solvency level, providing it with financial flexibility. Its long-term debt to capitalization of 36.8% compares favorably with the industry average of 89.7%. Also, its times interest earned stands at 17.5X, much higher than the industry’s average of 5.7X. In fact, it resumed its capital deployment on the back of its solid balance sheet. Since the inception of the current share buyback plan in 2014, Universal Health has repurchased more than 20% of its outstanding shares.
However, UHS’ steep expenses continue to bother.
More Room to Run?
Growing demand for healthcare services, accretive acquisitions and a solid acute care platform will likely drive the stock.
The stock carries a 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.
The Zacks Consensus Estimate for UHS’ 2021 earnings indicates an improvement of 5.4% from the year-ago reported figure.
Shares of UHS have lost 5% in a year’s time against its industry’s growth of 40.7%.
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Stocks to Consider
Some better-ranked stocks in the medical sector are Molina Healthcare Inc. MOH, NextGen Healthcare, Inc. NXGN and AMN Healthcare Services AMN.
With a Zacks Rank #2 (Buy) at present, Molina Healthcare Inc. is a multi-state managed care organization, participating exclusively in government-sponsored healthcare programs. Its earnings beat the consensus mark in two of the trailing four quarters (missing the mark in the remaining two), the average surprise being 4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
NextGen Healthcare is a developer and marketer of healthcare information systems. With a Zacks Rank of 2 at present, NXGN has a trailing four-quarter surprise of 16%, on average.
AMN Healthcare Services is a travel healthcare staffing company with a Zacks Rank of 1 at present. It has a trailing four-quarter surprise of 19.51%, on average.
Shares of NextGen Healthcare have lost 2% in a year’s time, while the stocks of Molina and AMN Healthcare Services have rallied 50.8% and 78.5% each.
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Universal Health Services, Inc. (UHS): Free Stock Analysis Report
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AMN Healthcare Services Inc (AMN): Free Stock Analysis Report
NEXTGEN HEALTHCARE, INC (NXGN): Free Stock Analysis Report
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