Universal Health Services, Inc. (UHS Quick QuoteUHS ) has been gaining traction from strategic initiatives and strong segmental contributions for a while now. A solid financial standing also reinforces the stock’s prospects.
Over the past 60 days, the currently Zacks Rank #1 (Strong Buy) company has witnessed its 2021 earnings estimate move 10.3% north. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has a VGM Score of A. VGM Score helps identify stocks with the most attractive value, best growth and the most promising momentum.
It has a Value Score of B. Back-tested results show that stocks with a Value Score of A or B when combined with a Zacks Rank of 1 or 2 (Buy) offer the best opportunities in the value investing space.
Now let’s dig deep into what makes this stock an attractive bet.
Universal Health reported second-quarter 2021 adjusted earnings of $3.76 per share, which surpassed the Zacks Consensus Estimate by 36.7%. The bottom line improved 28.3% year over year. An uptick in revenues and solid segmental outcomes contributed to the company’s performance.
The June quarter saw rebounding metrics that include acute and behavioral patient days, emergency room visits and surgical cases.
The hospital company has also been witnessing a strong revenue stream since 2010 on the back of solid performances of its segments, namely Acute Care and Behavioral Health. The top line witnessed a CAGR of 5.5% during the 2010-2020 forecast period, led by segmental upsides, higher admissions and patient days. In the first six months of 2021, the same increased 11.7% year over year, driven by an uptick in revenues across the company’s acute care and behavioural healthcare facilities.
The company is also expanding its facilities to meet the evolving needs of patients. Last year, it inaugurated three Freestanding Emergency Departments (FEDs) with a plan to open another five in 2022.
Acquisitions have been a major growth trajectory for the company. During 2020, it spent $52 million on the acquisition of businesses and property. We believe that the company will continue making acquisitions that will help it expand its domestic and international presence alongside positioning it better to weather the regulatory uncertainties in the healthcare sector.
Both its Acute Care and Behavioral Platforms have been contributing a lion’s share to its revenues. Since 2012, the average number of licensed beds in the acute care hospitals has been growing, pushing up the revenues.
In 2020 and during the first half of 2021, net revenues from the acute care segment rose 3% and 15%, respectively, year over year.
Average licensed beds in the behavioral health centers have also been growing since 2012, contributing to the top line. During 2020 and in the first half of 2021, the same inched up 0.6% and 7.2% year over year, respectively. Though the segment’s patient days were affected by a slew of suspended elective and scheduled procedures, the company left no stone unturned in boosting its behavioral health portfolio through joint ventures.
This segment holds immense scope for growth in the days ahead considering the dire need of addressing behavioral health issues triggered by the pandemic.
Universal Health has an impressive solvency level. Its total debt-to-total capitalization ratio of 35.4 compares favorably with the industry’s average of 91.4. Also, its times interest earned stands at 17.3X, much higher than the industry’s average of 4.5X. As of Jun 30, 2021, it had cash and cash equivalents of $199 million, higher than the current portions of the long-term debt of $107 million.
On the back of its sturdy capital position, the company recommenced its share buyback plan in April 2021.
Its consensus mark for 2021 earnings indicates an uptick of 8.7% from last year’s reported figure.
Shares of the company have surged 43.5% in a years’ time, underperforming its industry’s growth of 84.1%.
Image Source: Zacks Investment Research
Other Stocks to Consider
Some other top-ranked stocks in the same space are HCA Healthcare, Inc. (HCA Quick QuoteHCA ) , Acadia Healthcare Company, Inc. (ACHC Quick QuoteACHC ) and Encompass Health Corporation (EHC Quick QuoteEHC ) . While Encompass Health sports a Zacks Rank of 1, HCA Healthcare and Acadia Healthcare carry a Zacks Rank #2 (Buy), presently.
Earnings of HCA Healthcare, Acadia Healthcare and Encompass Health managed to deliver a trailing four-quarter surprise of 11.7%, 26.1% and 14.8%, respectively, on average.