It hasn't been a great afternoon session for Universal Health Services investors, who have watched their shares sink by -4.2% to a price of $229.15. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
a Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Universal Health Services, Inc., through its subsidiaries, owns and operates acute care hospitals, and outpatient and behavioral health care facilities. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 27.61 and an average price to book (P/B) ratio of 3.69. In contrast, Universal Health Services has a trailing 12 month P/E ratio of 16.8 and a P/B ratio of 2.36.
When we divideUniversal Health Services's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.61, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $10,772 | $11,378 | $11,559 | $12,642 | $13,399 | $14,282 |
| Operating Margins | 11% | 11% | 12% | 11% | 7% | 8% |
| Net Margins | 7% | 7% | 8% | 8% | 5% | 5% |
| Net Income (M) | $780 | $815 | $944 | $992 | $676 | $718 |
| Net Interest Expense (M) | $155 | $163 | $106 | $84 | $127 | $207 |
| Depreciation & Amort. (M) | $453 | $490 | $510 | $533 | $582 | $568 |
| Diluted Shares (M) | 94 | 89 | 86 | 84 | 74 | 70 |
| Earnings Per Share | $8.31 | $9.13 | $10.99 | $11.82 | $9.14 | $10.23 |
| EPS Growth | n/a | 9.87% | 20.37% | 7.55% | -22.67% | 11.93% |
| Avg. Price | $118.35 | $133.39 | $112.7 | $139.19 | $129.61 | $229.15 |
| P/E Ratio | 14.17 | 14.56 | 10.19 | 11.61 | 14.04 | 22.14 |
| Free Cash Flow (M) | $610 | $804 | $1,629 | $28 | $262 | $525 |
| CAPEX (M) | $665 | $634 | $731 | $856 | $734 | $743 |
| EV / EBITDA | 9.28 | 9.45 | 6.82 | 8.42 | 9.13 | 12.1 |
| Total Debt (M) | $4,062 | $4,072 | $4,188 | $4,239 | $4,889 | $5,027 |
| Net Debt / EBITDA | 2.43 | 2.35 | 1.59 | 2.17 | 3.02 | 2.81 |
| Current Ratio | 1.34 | 1.23 | 1.32 | 1.14 | 1.33 | 1.4 |
Universal Health Services has decent operating margins with a negative growth trend, just enough current assets to cover current liabilities, as shown by its current ratio of 1.4, and significant leverage levels. We also note that the company has growing revenues and a flat capital expenditure trend working in its favor. However, the firm suffers from EPS growth achieved by reducing the number of outstanding shares and positive cash flows.
