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Why Should You Add Universal Health (UHS) to Your Portfolio?

Zacks Equity Research

Universal Health Services Inc. UHS is well-poised for growth on the back of strong segmental performances and accretive acquisitions.

The company also has a favorable earnings surprise history, having outshined the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 4.5%. This, in turn, vouches for the company’s operating excellence.

Its return on equity — a profitability measure — stands at 16.4% against its industry's negative average of 2709%.

The stock carries an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors.  

The company recently delivered second-quarter adjusted earnings of $2.76 per share, beating the Zacks Consensus Estimate by 10.8% and also improving 11.7% year over year on the back of sturdy revenues. This upside was supported by higher admissions and patient days.

Its top line sees a consistent rise since 2010, which impresses investors. This positivity was driven by solid inorganic growth and a strong performance at both its segments — Acute Care and Behavioral Health. Since 2012, average number of licensed beds in both segments have been growing, pushing up the revenues. The metric has witnessed  a CAGR of 10.35% during the 2010-2018 period. It was also up 5.4% year over year in the first half of 2019, led by increased admissions and patient days. We expect this trend to continue on the back of solid segmental performances.

Moreover, over the years, Universal Health’s acquisitions have played a key role in building its growth trajectory by adding facilities, bed and hospital to its business portfolio. We believe, the company will continue to make strategic buyouts that will help it cement its domestic and international presence along with leveraging its position to weather the regulatory uncertainties in the healthcare sector.

The company also boasts a strong capital position on the back of its balance sheet strength. Its board of directors recently added $1 billion to its current share buyback program. In July, the company also hiked its cash dividend by 50%, payable Sep 16, 2019 to shareholders of record on Sep 3, 2019.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $10.19, suggesting a rise of 6.9% on 4.8% higher revenues of $11.3 billion from the year-ago reported figures.

For 2020, the Zacks Consensus Estimate for earnings per share stands at $10.97 on $11.8 billion revenues, implying a respective 7.7% and 6.9% increase from the prior-year reported numbers.

Shares of this Zacks Rank #2 (Buy) company have rallied nearly 17.3% in a year's time against its industry's decline of 6.7%.

Other Stocks to Consider

Investors interested in the medical sector can also take a look at some other top-ranked stocks like Molina Healthcare, Inc MOH, Anthem, Inc. ANTM and UnitedHealth Group Incorporated UNH. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Molina Healthcare offers Medicaid-related solutions to meet the health care needs of low-income families and individuals. The stock sports a Zacks Rank #1. In the trailing four quarters, the company came up with average beat of 66.93%.

Anthem works as a health benefits company in the United States. In the last four quarters, the company delivered average beat of 4.57%. The stock carries a Zacks Rank #2 (Buy).

UnitedHealth Group works as a diversified health care company. In the previous four quarters, the company pulled off average beat of 3.37%. The stock holds a Zacks Rank of 2.

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