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Universal Health (UHS) Grows on Buyouts, Expenses a Drag

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Universal Health Services, Inc.'s (UHS - Free Report) is well positioned for long-term growth on the back of its solid inorganic strategy. This has been contributing to the company’s growth story since long. The acquisition of the adult services division of Cambian Group in 2016 is worth a mention here.

Universal Health primarily specializes in providing low cost care to underprivileged patients. Its acute care platform has been delivering strong underwriting results consistently. The same trend continued in the first half of 2017 as well.

In addition, its behavioral platform has been performing well too. In fact, behavioral facility acquisitions help Universal Health win market share in the fast growing addiction and mental health disorder market. The segment continued to deliver strong results in the first half of 2017.

In the last six months, the stock has lost 9.4%, narrower than the industry’s decline of 11%. This reflects shareholders’ confidence in the stock despite the challenging environment.

However, the stock currently has a trailing 12-month price-to-sales ratio of 1.1. This, although is below the median 1.2 of its range, it compares unfavorably with the industry average of 0.5. This suggests that the stock is overvalued compared to its peers. 

In addition, the company’s high-debt level has been a concern over the last five years. This also led to a rise in interest expenses which could weigh on its margins.

Another area of concern for the company is the increase in its operating expenses since 2013, which continued to rise in the first half of 2017. This also keeps hurting the company’s bottom line.

Zacks Rank and Key Picks

Universal Health currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Investors interested in this space can consider stocks like Aetna, Inc , Anthem, Inc. and Amedisys Inc (AMED - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy).

Aetna’s earnings surpassed expectations in each of the last four quarters with an average beat of nearly 19%.

Anthem delivered positive surprises in three of the last four quarters with an average beat of 8.6%.

Amedisys delivered positive surprises in three of the last four quarters with an average beat of 7.2%.

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