Why is the Universal Health Services’ Stock a Strong-Buy?

Universal Health Services is based in Pennsylvania. The company provides hospital and healthcare services. It operates 400 facilities across the continental US, as well as in Puerto Rico and the UK. Among those facilities are hospitals, surgeries, and acute care centers. The stock gained more than $11 billion in revenues during the last year. Its market cap is worth $9.2 billion.

Medical facilities have been in high demand during the coronavirus pandemic. However, the lockdowns put a damper on elective procedures. Because of that, Universal Health Services’ earnings declined in Q1 by 37%, lowering to $1.73 per share. In an attempt to conserve capital during the pandemic period, UHS has suspended its profit-sharing programs, such as stock buybacks and dividends.

Analysts expect that sharp declines in the Acute Care and Behavioral Health segments will cause a 16% sequential reduction in stock’s revenues for the quarter.

However, that doesn’t mean that this stock is a bad investment – quite the opposite. Deutsche Bank’s analyst Pito Chickering noted several points in favor of UHS shares. He thinks that the stock will rebound in the near future.

According to Chickering, pre-coronavirus revenue trends were healthy during February. And hospital same-store revenue trends were in-line with expectations through mid/late March. Furthermore, hospital and provider volumes have rebounded quickly, surpassing market expectations.

What do analysts think?

The analyst believes that there will be pent-up demand for finite OR capacity with prioritization to emergent and urgent procedures, e.g., cardiac procedures vs. knees, hips, etc. However, his view is contingent on a further gradual opening of local and state-level economies.

Experts believe that if coronavirus cases continue surging, the country and hospitals are better equipped to handle a rise in COVID-19 cases at the local level. Meanwhile, national, state, and local policy measures will continue to adapt.

Chickering gave Universal Health Services a Buy rating. He set his price target at $135, which implies a 23% one-year upside potential.

So far, United Health Services has 8 Buys and 1 Hold rating, meaning the analyst consensus rating is a Strong Buy. Its shares are currently selling for $109.58, and the average price target of $135 matches Chickering’s.