Universal Health released its Q1 25 results on April 28, 2025, reporting a decent rise of 6.7% y/y in net revenues to US$4.1bn. Adjusted net attributable profit increased to US$319.5m or US$4.8 per diluted share, compared to US$253.1m or US$3.7 per diluted share in Q1 24. The stock price was volatile on the result day but gradually recovered in the following days to reach around US$199 levels on May 16, 2025. However, since then, the stock is facing selling pressure on account of recent Medicaid bill pushed by Republicans for proposed cuts to the health insurance program.
Universal Health Services, Inc., established in 1979 and headquartered in King of Prussia, Pennsylvania, is one of the leading hospital and healthcare services providers in the region. The company, through its subsidiaries, operates 29 inpatient Acute Care hospitals, 331 inpatient Behavioral Health facilities, 60 outpatient facilities and ambulatory care access points, an insurance offering, a physician network and other related services. Its network is spread across 39 US States, Washington, D.C., Puerto Rico and the UK.
The company has about 99,300 employees, and over 3.7m patients annually. In addition, Universal Health has about 23,000 nurses along with over 31,100 licensed beds. Segment wise, Acute Care Hospital Services contributed 57% of the total revenues in Q1 25, while Behavioral Health Care Services made up the remining 43%.
Revenue expansion through new facility
Universal Health posted 6.7% y/y increase in net revenue or $256m, primarily driven by 6.1% ($226m) growth in net revenues generated by the company’s acute care hospital services and behavioral health services. Net revenues generated from acute care services, on a same facility basis, increased by 6.5% y/t, whereas net revenues generated from behavioral health care services on a same facility basis, increased by 5.5%. The remaining $30m revenue increase primarily consists of $27m of net revenue generated at West Henderson Hospital, which is a newly constructed, 150-bed acute care hospital located in Las Vegas, Nevada. The facility was completed and opened during Q4 24.
On a same facility basis, average licensed beds stand at 6,704 in Q1 25 for acute care hospital services, and average available beds at 6,532. Patient days decreased slightly to 414,738 from 415,327 in the prior corresponding period, but average daily census rose to 4,608.2 from 4,564. In addition, the occupancy level of available beds remained broadly stable at 70.5%.
Profitability outperformance compared to peer
Universal Health posted a revenue CAGR of 7.8% over FY 21-24, reaching US$15.8bn. Operating income increased at a CAGR of 6.5% over the same period, reaching $1.7bn in FY 24, with margins contracting 38bp to 10.7%. Net income rose at a CAGR of 4.8% to $1.1bn in FY 24.
Cash and equivalent reached $126m at end-FY 24, reflecting a slight increase from $115m at end-FY 21, helped by steady increase from operating cashflow, and offset by investing activities. Total debt of the group remained flat at $5bn at end-FY 24, compared to $4.6bn at end-FY 21. In addition, total debt to equity also remained flat at around 73%.
On the other hand, HCA Healthcare, the company’s local peer, reported a revenue CAGR of 6.3% over the past three years, reaching $70.6bn in FY 24. Operating income increased at a modest CAGR of 2.9% to $10.6bn in FY 24. However, net income underperformed over the same period, declining at a CAGR of 6.1% to reach $5.8bn in FY 24.
Compelling valuation levels
Over the past 12 months, the company's stock has fallen by approximately 7%. In comparison, HCA Healthcare delivered decent returns of about 9%.
The company is trading lower compared to its historical average and HCA Healthcare. Universal Health is currently trading at a P/E of 8.9x, based on the FY 25 estimated EPS of $19.4, which is lower than its 3-year historical average of 13.7x and that of HCA Healthcare (14.5x).
Likewise, in terms of EV/EBITDA, the company is currently trading at 6.3x, based on the FY 25 estimated EBITDA of $2,458m, which is lower than its 3-year historical average of 8.3x and HCA Healthcare’s valuation of 9x.
Universal Health is generally liked by 19 analysts, with eight having ‘Buy’ ratings and 11 having ‘Hold’ ratings for an average target price of $225, implying 29.7% upside potential from the current price. Their views are further supported by an anticipated EBITDA CAGR of 6.7% over FY 24-27, reaching $2,755m, with margins of 14.5% in FY 27. In addition, analysts estimate a net profit CAGR of 7.2%, reaching $1,407m with margins of 7.4% in FY 27, with EPS expected to increase to $23.3 in FY 27 from $16.8 in FY 24. Likewise, analysts estimate EBITDA CAGR of 5.7% and net profit CAGR of 6.5% for HCA Healthcare.
Overall, Universal Health has reported a solid fundamental trajectory and focused on expanding revenues through the opening of new facilities. Moreover, the analysts share an optimistic picture of the company and anticipate a decent stock upside. However, the company is prone to some risks, including proposed budget cuts to health insurance program, dependence on revenues from third party and government payers, and input cost pressure.
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