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Universal Health's Segmental Strength Aids, High Costs Hurt

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Universal Health Services Inc. (UHS - Free Report) is well-poised for growth on the back of robust segmental performances and accretive acquisitions.

The company recently reported first-quarter earnings of $2.45 per share, which came in line with the prior-year quarter's figure. Net revenues increased 4.3% year over year to $2.8 billion, banking on higher admissions and patient days.

Its top line sees a consistent rise since 2010, which impresses investors. This upside was driven by solid inorganic growth and a strong performance at both its segments — Acute Care and Behavioral Health. The metric has witnessed a 2010-2018 CAGR of 10.35%. We expect the same to continue with its winning momentum on the back of solid segmental performances.

Acute Care is a branch of secondary healthcare where a patient receives short-term treatment for urgent medical conditions. The increase in the number of licensed beds in this segment has been contributing to its revenue base since 2012. In fact, the global market sentiments for acute care treatments are quite upbeat with North America accounting for the largest share in this space.

Universal Health also has a segment that focuses on behavioral indications like eating disorders, sexual trauma, autism and disorderliness in the military through its patriot support program. Further, this unit has been witnessing a rise in its licensed beds for over the past six years. In fact, behavioral facility acquisitions help Universal Health win market share in the fast-growing addiction and mental health disorder market.

Acquisitions have played a huge role in the company’s growth history. The buyouts have aided the company to successfully add facilities, bed and hospital to its business portfolio. We believe, the company will continue making acquisitions that will enable it to expand its domestic and international presence along with positioning itself better to weather the regulatory uncertainties in the healthcare sector.

However, the company has been witnessing escalating expenses since 2013, which is a persistent concern. In the first quarter of 2019, it rose 4.7% year over year to $2.5 billion, representing 88% of the total revenue stream. Rising expenses are likely to drain the company's margin going forward.

Stocks That Warrant a Look

Some stocks form the medical sector that warrant a look are HCA Healthcare, Inc. (HCA - Free Report) , Molina Healthcare, Inc (MOH - Free Report) and WellCare Health Plans, Inc. (WCG - Free Report) .

HCA provides health care services. In the last four quarters, the company delivered average beat of 15.74%.

Molina offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. In the trailing four quarters, the company came up with average beat of 88.17%.

WellCare Health offers managed care services to government-sponsored health care programs. The company pulled off average positive surprise of 13.52% in the preceding four quarters.

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