Universal Health Services Inc (UHS, Financial) has recently shown a daily gain of 4.47% and an 8.98% increase over the last three months. With an Earnings Per Share (EPS) of 11.78, investors are keen to understand: Is the stock fairly valued at its current price? This analysis delves into Universal Health Services's valuation to provide insights.
Company Overview
Universal Health Services operates a network of acute care hospitals, behavioral health centers, and ambulatory surgery centers across two main segments: Acute Care Hospital Services and Behavioral Health Services. The company's current stock price stands at $177.05, with a market cap of $11.80 billion, closely aligning with its GF Value of $172.32, suggesting a fair valuation. This sets the stage for a deeper evaluation of its intrinsic value and financial health.
Understanding GF Value
The GF Value is a proprietary measure calculated based on historical trading multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, adjusted for past performance and expected future business performance. This valuation suggests that Universal Health Services's stock price should hover around this value, indicating potential investment risks and returns when the price deviates significantly from this benchmark.
Currently, Universal Health Services is assessed as fairly valued, indicating that its stock price is expected to grow at a rate parallel to its business growth.
Financial Strength and Stability
Before investing, evaluating a company's financial strength is crucial. Universal Health Services's financial strength is rated as fair, with a cash-to-debt ratio of 0.02, positioning it lower than 93.34% of its industry peers. This assessment is vital as companies with weak financial health pose higher risks of loss.
Profitability and Growth Prospects
Universal Health Services has maintained profitability over the past decade, with a strong operating margin of 8.77%, which is better than two-thirds of its competitors. This profitability, combined with a revenue growth rate of 14.7% annually, underscores its potential for sustained financial performance. However, its 3-year average EBITDA growth rate at 3.8% suggests some challenges in scaling its operations relative to the industry.
Comparative Analysis of ROIC and WACC
A critical measure of profitability is the comparison between Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). Universal Health Services's ROIC stands at 8.27%, which is below its WACC of 9.5%, indicating that it is currently generating lower returns on investment than the cost of its capital, potentially undermining value creation for shareholders.
Conclusion
In conclusion, Universal Health Services (UHS, Financial) appears to be fairly valued based on current assessments. The company exhibits strong profitability metrics, though its growth and value creation metrics suggest some areas for caution. For a deeper dive into Universal Health Services's financial health and stock performance, potential investors can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
