Universal Health Potential Target

Universal Health Services, Inc. (UHS - Snapshot Report) reported better-than-expected second-quarter net income of $54.2 million, or EPS of $1.07, compared with net income and EPS of $52 million and $0.79 respectively in the year-ago period.

Highlights of the result included: a 7.8 percent year-over-year increase in same-store revenues, coupled with relatively high occupancy rates of ~77% in the first half of 2008, in the behavioral health division; and 10% year-over-year increase in total admissions in the Las Vegas acute care hospital business.

Nonetheless, consolidated EBITDA margins decreased 60 basis points, while bad debt expenses (as a percentage of revenue) increased marginally on a sequential basis. We retain our Hold rating at current levels.

We have valued Universal Health Services on a forward price/earnings (P/E) basis, as well as a comparison to similar firms in the healthcare facilities sector. Given recent M&A activity in the sector we regard UHS as a potentially attractive target given the potential breakup value of the company’s acute and behavioral health hospital assets. Our $65 price target is derived using a P/E multiple of 16.7 x FY08 EPS of $3.90.

Read the full analyst report on UHS

Read the full analyst report on UHS