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Here's Why You Should Retain Universal Health (UHS) Stock Now

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Universal Health Services, Inc. (UHS - Free Report) is well-poised for growth, courtesy of consistent top-line growth, solid segmental performances, diversified care network and strong cash balance.

Zacks Rank & Price Performance

Presently, Universal Health carries a Zacks Rank #3 (Hold).

The stock has appreciated 10.3% in the past three months compared with the industry’s growth of 5.2%. Meanwhile, the Medical sector and the S&P Index declined by 4% and 3.3%, respectively.

Zacks Investment Research
Image Source: Zacks Investment Research

Robust Growth Prospects

The Zacks Consensus Estimate for 2022 earnings is pegged at $12.4, indicating an increase of 4.7% on 6.7% higher revenues of $13.5 billion. The consensus mark for 2023 earnings stands at $14.2, suggesting growth of 14.3% on 4.3% higher revenues of $14.1 billion.

The expected long-term earnings growth rate is pegged at 9.4%, better than the industry’s average of 8.5%.

Northbound Estimate Revision

The Zacks Consensus Estimate for 2022 and 2023 has moved north by 2.1% and 5.8%, respectively, in the past 60 days, reflecting analyst optimism.

Decent Earnings Surprise History

Universal Health has a sound earnings surprise history, wherein the bottom line outpaced estimates in three of the trailing four quarters and missed once, the average surprise being 12.54%.

Business Tailwinds

With a 2010-2021 CAGR of 7.7%, revenues of Universal Health continue to benefit on the back of an expansive care network and solid contributions by Acute Care Hospital Services and Behavioral Health Services segments. UHS consistently resorts to service launches, upgradation of existing services, physician recruitment and exerting of financial and operational controls to boost its operating revenues and profitability of owned hospitals. Meanwhile, both the operating segments of Universal Health gained on the back of increased admissions and patient days last year.

For 2022, Universal Health forecast net revenues between $13.4 billion and $13.7 billion, the mid-point of which indicates a rise of 7.2% from the 2021 reported figure. The same also lies higher than the Zacks Consensus Estimate of $13.5 billion.

UHS’ diversified care network caters to the healthcare needs of several communities through acute care hospitals and outpatient facilities as well as behavioral healthcare facilities. As of Feb 24, 2022, Universal Health’s portfolio includes 363 inpatient facilities and 40 outpatient and other facilities stretched throughout 39 states, Washington, D.C., the U.K. and Puerto Rico. UHS intends to pursue opportunities related to the acquisition, construction or leasing of additional hospital facilities for bolstering the base of operations. These initiatives might pave the way for the healthcare provider to access enhanced healthcare delivery capabilities and enter new markets.

Universal Health has a solid financial standing, backed by a strong cash balance and adequate cash-generating abilities. It generated cash from operations worth $883.7 million in 2021. A strong financial position also enables UHS to undertake growth-related initiatives and tactical deployment of capital. In February 2022, management approved an increase of $1.4 billion in its share buyback program.

Universal Health’s leverage ratio at 2021-end of 40.4 remains way lower than the industry’s figure of 91.9, which bodes well.

Stocks to Consider

Some better-ranked stocks from the medical space include Mednax, Inc. (MD - Free Report) , Applied Therapeutics, Inc. (APLT - Free Report) and Henry Schein, Inc. (HSIC - Free Report) . While Mednax sports a Zacks Rank #1 (Strong Buy), Applied Therapeutics and Henry Schein carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank  stocks here.

The bottom line of Mednax outpaced estimates in each of the last four quarters, the average surprise being 27.99%. The Zacks Consensus Estimate for MD’s 2022 earnings suggests an improvement of 12.9%, while the same for revenues suggests growth of 4.2% from the corresponding year-ago reported figures. The consensus mark for Mednax’s 2022 earnings has moved north by 7% in the past 60 days.

Applied Therapeutics has an average surprise of 2.58%. The Zacks Consensus Estimate for APLT’s 2022 earnings indicates a 24% improvement from the prior-year figure. The consensus mark for Applied Therapeutics’ 2022 earnings has moved north by 19.8% in the past 30 days.

The bottom line of Henry Schein outpaced the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 25.54%. The Zacks Consensus Estimate for HSIC’s 2022 earnings suggests a 7.5% improvement from the prior-year figure, while the same for revenues suggests a 6.4% rise from the prior-year figure. The consensus mark for Henry Schein’s 2022 earnings has moved north by 4.2% in the past 60 days.

Henry Schein stock has gained 13.4% in the past three months. Meanwhile, shares of Mednax and Applied Therapeutics have lost 16.1% and 63.3% respectively, in the same time frame.