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Growth & Income

U.S. Physical Therapy, Inc. (USPH - Snapshot Report) recently delivered another strong quarter on better than expected revenue. The company reported first quarter earnings per share of 31 cents, crushing the Zacks Consensus Estimate by 15%.

It was the company's fifth consecutive positive earnings surprise.

Analysts have been raising their estimates since the latest earnings beat, sending the stock to a Zacks #2 Rank (Buy).

The company, which operates outpatient physical therapy clinics throughout the United States, also recently announced the initiation of a regular quarterly dividend, which signals management's bullish long-term outlook.

First Quarter Results

U.S. Physical Therapy reported better than expected first quarter results on May 5. Earnings per share came in at 31 cents, beating the Zacks Consensus Estimate by 4 cents. It was a 15% increase over the same quarter in 2010.

Net revenue rose 13% to $56.7 million in the quarter, well ahead of the $54.0 million consensus estimate. This increase was driven in large part by a 10% increase in patient visits.

Gross profit expanded 200 basis points to 26.7% of revenue. Meanwhile, operating income grew 30% as the company was able to leverage its fixed expenses.

Outlook

The solid revenue and earnings beats once again led to analysts raising their estimates for both 2011 and 2012. As seen in the company's Price & Consensus chart, consensus estimates have been moving higher over the last several months as USPH has delivered 5 consecutive positive earnings surprises:

USPH: U.S. Physical Therapy, Inc.

It is a Zacks #2 Rank (Buy) stock.

Analysts are projecting solid earnings growth for the company over the next two years. The 2011 Zacks Consensus Estimate is $1.39, representing 11% growth. The 2012 consensus estimate is $1.54, which corresponds to 10% EPS growth.

Valuation

Shares have risen more than 40% since the markets began taking off in early September. However, valuation is still reasonable because of a corresponding rise in earnings estimates.

The stock trades at 16.1x 12-month forward earnings, a significant discount to the industry average of 25.0x. It is also a discount to its 10-year median of 16.9x.

Dividend

In March 2011, USPH paid out its first quarterly dividend. It yields a solid 1.4%.

The company has solid cash flow and a healthy balance sheet, so it could have chosen instead to buy back shares. However, by choosing to initiate a regular quarterly dividend, management signaled that it has a bullish long-term outlook for the company.

The reason for this is that dividends are often seen by the market as a long-term (if not permanent) commitment, while a stock buyback can typically be ended at any time without repercussions.

U.S. Physical Therapy, Inc. operates 397 clinics in 42 states. It was founded in 1990 and has a market cap of $272 million.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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