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Universal Health Services, Inc. (UHS)

While it seems like the political and legal wrangling over the health care system in the U.S. will never end, the industry is chugging along regardless. People get sick and need treatment regardless of what governments do, as evidenced by the multiple recommendations from the health care sector in the...

While it seems like the political and legal wrangling over the health care system in the U.S. will never end, the industry is chugging along regardless. People get sick and need treatment regardless of what governments do, as evidenced by the multiple recommendations from the health care sector in the upcoming Investment Digest(which will be sent out this evening). The recommendations include a drug company, a device maker and the company profiled by Richard Moroney below.

Universal Health Services, Inc. (UHS) operates more than 231 hospitals, psychiatric-health clinics, and ambulatory surgical centers. In the wake of the November 2010 acquisition of Psychiatric Solutions, more than 85% of Universal’s locations focus on behavioral health, a higher-margin business less dependent on government payments than acute care. Going forward, psychiatric services should account for nearly half of Universal’s revenue. In 2011, sales, per-share profits and operating cash flows all rose more than 35%, as the psychiatric acquisition offset weakness in acute care. Behavioral-care demand remains solid, while acute-care admissions should rise as the economy continues to recover.

“The consensus projects per-share-profit growth of 11% this year and 14% annually over the next five years, manageable targets for Universal Health Services. At 10 times estimated year-ahead earnings, the stock trades at an 18% discount to the median health-care facilities firm in the S&P 1500 Index. Universal Health also trades at a discount of at least 27% to its five-year average price/earnings and price/ operating cash flow ratios. Universal Health Services, being initiated as a Buy, seems capable of topping $55 per share over the next 12 to 18 months.”

- Richard J. Moroney, Dow Theory Forecasts, April 2, 2012