Is Universal Health Services (UHS) Still Attractive After A 17.9% Year-To-Date Share Price Decline?

• Investors may be wondering whether Universal Health Services, at around US$180 per share, still offers value or if most of the opportunity has already been priced in.
• The stock is flat over the last week with a 0.9% gain, softer over the past month with a 6.2% decline, and sits on a 17.9% year-to-date decline despite a 4.6% return over the last year and 38.1% and 34.9% returns over 3 and 5 years respectively.
• Recent coverage has focused on Universal Health Services as a large US healthcare provider, with attention on how the company is positioned within hospital and behavioral health services. This context has kept investors focused on how resilient its business model may be through different market conditions.
• Right now the company scores a full 6 out of 6 on our valuation checks. The rest of this article will walk through what that means across different valuation methods before finishing with a way to look at value that goes beyond the usual ratios.

Universal Health Services delivered 4.6% 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 model takes estimates of future cash that a business may generate and discounts those amounts back to today, aiming to translate all those future dollars into a single present value per share.

For Universal Health Services, the latest twelve month Free Cash Flow is about $858.9 million. Analysts provide forecasts out to 2027, with Free Cash Flow for that year projected at $1,278 million. Beyond that, Simply Wall St extrapolates cash flows out to 2035, with the 2035 forecast at $1,612.9 million, based on a 2 Stage Free Cash Flow to Equity model that gradually tapers growth.

When those projected cash flows are discounted back, the model arrives at an estimated intrinsic value of about $549.88 per share. Compared with a current share price around $180, the DCF output suggests Universal Health Services trades at roughly a 67.2% discount, which points to the shares looking significantly undervalued on this model alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Universal Health Services is undervalued by 67.2%. Track this in your watchlist or portfolio, or discover 61 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

For profitable companies, the P/E ratio is a useful way to relate what you pay for each share to the earnings that support that share. It lets you quickly see how many dollars of share price investors are paying for each dollar of earnings.

What counts as a “normal” P/E depends on how quickly earnings are expected to grow and how risky those earnings are. Higher expected growth and lower perceived risk can support higher P/E ratios, while lower growth or higher risk usually point to lower P/E levels.

Universal Health Services currently trades on a P/E of 7.41x. That sits well below the Healthcare industry average of 22.51x and the peer average of 22.81x. Simply Wall St’s proprietary Fair Ratio for Universal Health Services is 21.76x, which reflects factors such as its earnings growth profile, profit margins, industry, market cap and key risks.

The Fair Ratio aims to be more tailored than a simple peer or industry comparison because it accounts for company specific characteristics rather than relying on broad group averages. Comparing 7.41x to the Fair Ratio of 21.76x suggests Universal Health Services trades at a lower multiple than this tailored benchmark.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Universal Health Services Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you turn your view of Universal Health Services into a clear story that links its business drivers to a forecast and then to a Fair Value. They compare that Fair Value with today’s price to help you decide whether the stock looks attractive or stretched, and they keep that view up to date as new earnings or news arrive. All of this is available within an accessible tool on the Community page that millions of investors use to set up different scenarios, such as a more optimistic UHS Narrative that leans toward a Fair Value around US$302.19 and a more cautious one closer to US$165.00, so you can quickly see how your own expectations fit along that spectrum.

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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