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Can Universal Health's (UHS) Latest Buyout Drive Growth?

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Universal Health Services, Inc. (UHS - Free Report) recently announced that it has completed the acquisition of Cambian Group, PLC's Adult Services Division.

Universal Health is expected to have paid a total purchase price of £377 million ($464 million) for this transaction. The company’s main objective behind acquiring the Cambian Group asset was to establish its foothold in the U.K., where the operations of the acquiree are mainly centered.

Shares of Universal Health have been underperforming since the beginning of this year. The stock has lost 11.2% year to date, compared with the Zacks categorized Hospitals industry’s decline of 9%. We expect the latest acquisition to not only help the company expand in the U.K market but also generate confidence among shareholders regarding this stock.

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Universal Health also stands to benefit financially from this acquisition as the deal is expected to boost both its top line and bottom line significantly. Universal Health expects the Cambian Group asset to add approximately £142 million ($175 million) to its revenues. It also anticipates that the buyout will increase its adjusted EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) by £35 million ($43 million).

Coming to other benefits, the takeover is likely to add 81 behavioral facilities with 1,193 beds to the acquirer, resulting in a total of 102 facilities with 2,250 beds possessed by Universal Health in the U.K. These added facilities with their diversified operations are expected to provide quality care to adults with mental health issues, intellectual disabilities, autism, personality disorders and acquired brain conditions.

Universal Health has been making several acquisitions over the past few years to drive growth. Last year, the company had acquired Alpha Hospitals Holdings Limited – a provider of low and medium secure mental health care facilities and services – in the U.K. In the same year, it bought Orchard Portman House Hospital, a 46-bed behavioral health care facility near Taunton.

However, the prospects of the company are now uncertain as President-elect Donald Trump plans to repeal ObamaCare. The Affordable Care Act (ACA) under Barrack Obama greatly benefited the hospital company by increasing the number of insured population, which led to a decline in bad debts.

A greater number of insured patients meant low incident of bad debts which shielded margins. Now that Trump is likely to repeal most parts of the Act, Universal Health, along with other medical sector stocks like WellCare Health Plans Inc. (WCG - Free Report) , Magellan Health Inc. (MGLN - Free Report) and UnitedHealth Group, Inc. (UNH - Free Report) , to name a few,  is deeply concerned. 

Zacks Rank

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

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