Is It Too Late To Reassess Universal Health Services (UHS) After Its Strong 1-Year Run?

• If you are wondering whether Universal Health Services is still reasonably priced after its recent run, this article is going to focus squarely on what you are paying for compared to what you are getting.
• The stock last closed at US$235.29, with returns of 1.7% over 7 days, 17.7% over 30 days, 7.0% year to date, 28.8% over 1 year, 61.9% over 3 years, and 75.1% over 5 years. This performance has many investors reassessing the balance between potential growth and risk.
• Recent coverage has continued to focus on Universal Health Services' position in the US healthcare sector, along with ongoing attention on hospital operators' pricing power and cost pressures. This backdrop helps frame why the stock's performance has been on investors' radar and sets the scene for a closer look at what the current share price might imply.
• On our framework of 6 valuation checks, Universal Health Services scores 5 out of 6. We will break this down using earnings based, asset based, and cash flow based approaches, then finish by looking at a more holistic way to think about the company's value beyond any single model.

Universal Health Services delivered 28.8% returns over the last year. See how this stacks up to the rest of the Healthcare industry.

Approach 1: Universal Health Services Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future cash flows and then discounting those back to a present value.

For Universal Health Services, the latest twelve month Free Cash Flow is about $1.00b. Using a 2 Stage Free Cash Flow to Equity model, analysts and extrapolated estimates project Free Cash Flow out over the next decade, including figures such as $1.24b in 2026 and $1.31b in 2027, with further years extended by Simply Wall St. Each of these projected cash flows is discounted back to today to account for the time value of money and risk.

On this basis, the DCF model arrives at an estimated intrinsic value of about $588.00 per share, compared with the recent share price of $235.29. That implies the stock is roughly 60.0% undervalued according to this cash flow based view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Universal Health Services is undervalued by 60.0%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Universal Health Services.

Approach 2: Universal Health Services Price vs Earnings

P/E is a useful yardstick for a profitable company like Universal Health Services because it links what you pay per share to the earnings that business is currently generating. In general, higher growth expectations and lower perceived risk tend to justify a higher P/E, while slower growth and higher risk usually point to a lower, more conservative range.

Universal Health Services is trading on a P/E of about 10.7x. That sits well below the Healthcare industry average of around 23.5x and also below the peer group average of about 26.2x. Simply Wall St’s Fair Ratio for the stock is 24.2x, which is its estimate of a more appropriate P/E after considering factors such as earnings growth, profit margins, the company’s industry and market cap, as well as key risk measures.

This Fair Ratio aims to give you a cleaner signal than a simple comparison with peers or the broad industry, because it adjusts for company specific characteristics rather than assuming all Healthcare names deserve the same multiple. Lining up the current 10.7x P/E against the 24.2x Fair Ratio suggests Universal Health Services may be trading below what this framework would imply.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Universal Health Services Narrative

Earlier we mentioned that there is an even better way to think about valuation. On Simply Wall St, that comes to life through Narratives, which let you connect your own story about Universal Health Services to specific forecasts for revenue, earnings, margins and a fair value. You can then compare that fair value with the live share price on the Community page, see how other investors frame the same stock, and watch those Narratives refresh automatically as new results or news land. For example, one investor might build a cautious Universal Health Services view around a US$165 fair value with slower growth and more pressure from Medicaid and ACA subsidies. Another might lean into a more optimistic story with a US$280 fair value that assumes faster growth, firmer margins and a higher future P/E. You can see both side by side and decide which one, or a version of your own, you find more reasonable.

For Universal Health Services however we will make it really easy for you with previews of two leading Universal Health Services Narratives:

Each one takes the same company data and pulls it into a different story about where value might sit and what could change that over time.

🐂 Universal Health Services Bull Case

Fair value estimate: US$300.03

Implied undervaluation vs last close: about 21.6%

Revenue growth assumption: 5.34%

• Expects resilient margins, with behavioral health leadership, outpatient expansion and technology investment helping to offset ACA subsidy and reimbursement headwinds.
• Builds in revenue growth of 6.5% a year over the next three years in the original work, with margins ticking higher and earnings reaching US$1.6b by around 2028, helped by ongoing share buybacks.
• Anchors on a higher analyst price target that assumes a future P/E in the low double digits, still below the broader US Healthcare sector level used in the narrative.

🐻 Universal Health Services Bear Case

Fair value estimate: US$200.67

Implied overvaluation vs last close: about 17.2%

Revenue growth assumption: 4.40%

• Focuses on payor mix risk and ACA related Medicaid changes that are expected to trim hundreds of millions of dollars of supplemental payments by 2032 and weigh on revenue growth and EBITDA.
• Assumes slower revenue growth around the mid 4% range, modest margin pressure from labor costs and outpatient or telehealth shifts, and a lower future P/E multiple in the single digits.
• Reflects updated bearish analyst work that has lifted fair value from US$165.00 to US$200.67 but keeps a more cautious stance on how reimbursement, policy and pricing power could affect future returns.

Together, these Narratives frame the current US$235.29 share price between a higher fair value built on firmer margins and outpatient growth, and a lower fair value that leans into reimbursement and cost risks. The gap between them is a useful guide to what you would need to believe about Universal Health Services to lean bullish or bearish on the stock at today’s level.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there's more to the story for Universal Health Services? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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