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About Universal Health Services

Headquartered in King of Prussia, Pennsylvania, Universal Health Services (UHS) is a major operator of hospitals and specialty clinics and other related facilities around the United States of America, not to mention with some additional operations spread out across the United Kingdom.

Take our neck of the woods, Austin, Texas as an example.

Universal Health just so happens to have a few facilities near where we reside, one called Austin Oaks Hospital and another by the name of Texas NeuroRehab Center.

Among other services, Universal Health Services, say, at its Austin Oaks facility offers services surrounding mental health and its NeuroRehab location is seemingly focused on similar matters, including behavioral as well, and those are just a couple of locations in and around our nook of Texas.

Some of the other lines of business Universal is engaged in is the development and operation of general hospital facilities, primarily, as they are called within the industry, acute healthcare facilities, which generally lean towards intaking and taking care of patients with short-term needs and accommodations, such as child labor, emergency surgery, patient rehabilitation, to name a few of the more common use cases, and lastly, we will briefly mention that UHS also operates ambulatory surgery centers as well, which, in layman’s terms, basically means that it provides medical services that don’t warrant a patient entering a hospital, but rather receiving the treatment(s) they need within the confines of an ambulance.

As one might’ve already gathered, Universal generates the bulk of its revenues through, really, selling the aforementioned services, whether the bill(s) are being paid by patients out of pocket (i.e., just showing up and paying for the services they received in cash) or by means of private, individual health insurance, or perhaps even through government programs such as Medicare and Medicaid.

Regardless of the source, these are some of the entities that pay Universal for the services they offer and ultimately how Universal Health Services generates revenue.

It is also worth noting that we view the company as being fairly recession proof, at least on the basis of its core operations, as regardless of the state of the national and/or macroeconomy, folks will become patients and patients will need to pay for the services and treatment(s) they receive from UHS somehow, leading us to conceive that the company generates some fairly consistent annualized figures, not to mention the general destigmatization of mental health matters is surely to act as a sort of revenue tailwind for UHS and others in the years and decades to come.

Yes, Universal Health Services apparently has its hands in a few different healthcare cookie jars, but all of its services are concentrated within the healthcare sector, seemingly competing with hospital companies that we have analyzed in previous stock analysis articles.

Without further ado, let’s see how Universal Health Services measures up to the competition and, of course, our standards.

UHS’ stock financials

In getting things started with Universal Health Services, this is a $10.37 billion healthcare company and operator, trading at a present share price of $151.93 along with an associated price-to-earnings (P/E) ratio of 15.67 along with an annually distributed dividend of $0.80 per share, which, for some preliminary information regarding the company and its stock (NYSE: UHS), isn’t all that bad of a start, with the fact(s) that Universal pays out an annual dividend of nearly four quarters each year to its shareholder base, generally implying that it generates a sufficient amount of cash allowing to issue out said dividend (we will verify this later, however), but our favorite initial portion regarding UHS is its current price-to-earnings ratio, being considerably lower than the commonly held fair value benchmark of 20, implying that the company’s stock (NYSE: UHS) is undervalued at the time of this publication.

So far, so Universal and so good.

Moving right along, it can be found that Universal Health System’s executives are tasked with taking care of properly tending to just about $13.5 billion in terms of total assets along with total liabilities in the approximate amount of $7.5 billion, which is yet another positive, as Universal’s management has crafted a great, total asset-heavy balance sheet, naturally affording itself a viable path towards steadily paying down some of its outstanding debt(s) as well as allowing it to responsibly incur some more through acquiring and/or developing new hospital and specialized facilities and properties in and around the United States.

Candidly, we did not think this company’s balance sheet would be as total asset-heavy as it evidently is, and we will happily take this upside surprise any time of the day.

With respect to the company’s income statement, Universal’s recent total annual revenues have been slowly and steadily rising on a year-over-year (YOY) basis, for instance, with its total annual revenue in 2018 reported as being $10.7 billion, rising the following year to a figure of $11.3 billion, nearly $11.6 billion in 2020, $12.6 billion in 2021, leading up to its latest displayed figure (as found on TD Ameritrade’s platform) of almost $13.4 billion, as reported in 2022.

We presume this mild growth can be ascribed to a combination of factors, perhaps some and perhaps all, including but not necessarily limited to mild regional price hikes imposed on its patients and/or new facilities being built out and opened, or perhaps even more organic demand for this company and its services and treatments, among other possibilities.

As it relates to the company’s cash flow statement, Universal’s net income and total cash from operations figures have remained both eerily positive and consistent, for example, with its net income ranging between $657 million (2022) and $988 million (2021), not to mention that its total cash from operations range during the same time period have ranged between $884 million (2021) and a relative high of $2.3 billion, as reported in 2020, both sets of data acting as positive, largely to be expected cues, indicating that UHS has maintained its ability to extract cash through its business operations, however, a little validation never hurt, as these figures speak to us saying that Universal Health Services has little to problems with generating cash.

Keep talking, please.

UHS’ stock fundamentals

Speaking a bit more to the company and its ability to turn over cash, let’s take a quick gander over at Universal’s trailing twelve month (TTM) net profit margin, shall we?

Specifically, also according to the figures displayed on TD Ameritrade’s platform, Universal’s TTM net profit margin is in a very, very strong place, especially as it measures up with the industry’s relative figures, with, for example, the company’s TTM net profit margin marked as 4.78% to the industry’s respective average of a much less exciting and far less intriguing 0.18%, and, let’s be honest, for how profitable people eagerly assume hospital systems to be, there really is a lot of overhead that can eat viciously into one’s margins, and given the fact that both the company’s and industry’s TTM net profit margin are objectively quite low, this is overwhelmingly reaffirmed.

Nevertheless, it does speak well to the company’s ability to out-profit its peers (on average), perhaps a byproduct of it focusing its operations intensely on acute care facilities and mental health venues and systems in underserved regions and communities in and surrounding the United States, which, obviously, is far from being a bad thing.

Regarding the company’s core TTM returns on both assets and investments, TD Ameritrade’s platform also has the company’s listed figures as being 4.92% and 5.77% to the industry’s respective averages of 5.72% and 4.04%, Universal Health Services winning on one spectrum but not other.

Frankly, these discrepancies don’t really make or break our opinion(s) regarding Universal Health Services, as on both fronts the industry’s cumulative averages and the company’s are so close together, so we think it is best to just say that on these spectrums, Universal is remaining competitive and, for the most part, moving well in-line with the industry’s averages.

Should you buy UHS stock?

We are net bullish on the future of healthcare companies, particularly hospital systems and their related properties and services, given the gradual rise of individuals and organizations broadly taking matters of healthcare more seriously, especially regarding the destigmatization of mental health matters, and we do view that in itself as a tailwind for Universal Health Services.

In addition to also being generally resistant to recessionary pressures, we also think this is one of those companies that will still perform well during, say, another global health crisis such as a pandemic, as demand for its services and centers will likely spike as a result, and it can also be found that the company’s revenues remained in a growing stature throughout 2019 and 2020, which is a great sign, although it certainly isn’t an airtight indicator of the future, but still a good historical indicator and reference.

With a more than solid total asset-heavy balance sheet, a price-to-earnings ratio indicating that this stock is undervalued, a comforting annual dividend that UHS can seemingly afford to issue, a growing annualized revenue base in recent years, cash flow positivity and competitive TTM net profit margin and core return on asset(s) and investment(s) figures along with the aforementioned industry-wide trends and observations, we think it makes the most sense to offer UHS’ stock (NYSE: UHS) a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.