Universal Health Services stock (NYSE: UHS), a hospital and healthcare services provider, has seen a 2% rise this year, outperforming the broader S&P500 index, down 16%. However, in the longer term, UHS stock, with a 14% return since late 2018, has underperformed the S&P 500 index, up over 60%.
This 14% rise for UHS stock since late 2018 can primarily be attributed to 1. UHS’ revenue growth of 23% to $13.2 billion over the last twelve months, compared to $10.8 billion in 2018, 2. a 20% fall in its total shares outstanding to 72.5 million, driven by share repurchases of over $2.0 billion, partly offset by 3. the company’s P/S ratio falling 26% to 0.7x trailing revenues, from 1.0x in 2018. Our dashboard on Why Universal Health Services Stock Moved has more details.
UHS’ revenue growth over the recent quarters has been driven by higher demand for its acute care hospital services and behavioral health service. The company has seen a low single-digit increase in average revenue per admission so far this year, a trend expected to continue in the near term. However, the company’s expenses are rising faster than revenue growth, weighing on its bottom line. UHS’s operating income has currently declined to 8.8%, compared to 12.3% in 2018. The company’s earnings of $6.88 on a per share and adjusted basis for the nine months ending September 2022 reflects a 22.5% cut from its $8.88 figure in the prior year quarter, despite a 12.3% reduction in share count.
After its outperformance vis-a-vis broader markets this year, we believe UHS is fully valued now. At its current levels of $133, it is trading at 13.5x its expected adjusted EPS of $9.84 in 2022 and 12.3x its expected adjusted EPS of $10.83 in 2023 (based on consensus estimates), compared to its last four-year average of 12.3x. Given the near-term headwinds amid rising costs, a slightly lower multiple compared to its historical average would make sense, implying that the stock is fully valued.
While UHS stock looks like it is appropriately priced, it is helpful to see how Universal Health Services’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis and recent market volatility have created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Novanta vs. Abbott.
|S&P 500 Return||4%||-16%||80%|
|Trefis Multi-Strategy Portfolio||4%||-19%||221%|
 Month-to-date and year-to-date as of 11/28/2022
 Cumulative total returns since the end of 2016