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Value

Tracey Ryniec

Universal Health Services, Inc.

UHS

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Universal Health Services, Inc. (UHS - Snapshot Report) is seeing a turnaround in acute care hospitals as the US economy improves. In April, the company raised full year earnings guidance. This Zacks #1 Rank (strong buy) is attractively valued at just 13.4x forward estimates.

Universal Health Services operates acute care and behavioral health hospitals, ambulatory centers, surgical hospitals and radiation oncology centers nationwide and in Puerto Rico.

Universal Health Services Beat By 22.3% in the First Quarter

On Apr 26, Universal Health Services surprised on the Zacks Consensus for the first time in 4 quarters by 21 cents. Earnings per share were $1.15 compared to the consensus of 94 cents.

Revenue jumped 42% to $1.9 billion from $1.4 billion in the first quarter of 2010 but that was primarily due to the acquisition of behavorial health care facilities obtained from Psychiatric Solutions in Nov 2010.

In its acute care segment, revenue rose 6.6% compared to the first quarter the prior year. In the behavioral health care services, revenue increased 6.5% compared to the year ago period. The operating margin also rose to 26.3% from 26% in Q1 of 2010.

Full Year Guidance Raised

Given the trends the company saw in the first quarter, and the big quarterly beat, the company raised its full year guidance to a range of $3.85 to $4.00, up 20 cents from its prior range of $3.85 to $3.80.

Net revenue was kept unchanged at between $7.6 billion to $7.7 billion.

Zacks Consensus Estimates Rise

Not surprisingly, given the earnings guidance, analysts also raised full year guidance. The 2011 Zacks Consensus Estimate jumped to $3.96 from $3.73 per share in the last 60 days.

This is earnings growth of 55.9%. The company made just $2.54 per share last year.

Still a Value Stock Even With Shares Surging

Shares of Universal Health Services are near 3-year highs but still have value.

In addition to a P/E that is under 15, which is the cut-off I use for "value", it also has a price-to-book ratio of 2.4. That is under the 3.0 parameter that I consider value.

Additionally, the company has a cheap price-to-sales ratio (P/S) of just 0.8. A P/S ratio under 1.0 indicates value.

Universal Health Services may not be in a glamour sector like technology, but with double digit earnings growth expected in 2011, it is an attractively priced company in which to also get growth.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

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