Stephens raises Universal Health Services target to $223

On Friday, Stephens raised the price target on Universal Health Services (NYSE:UHS) to $223 from $210, while keeping an Equal Weight rating on the stock. The adjustment follows Universal Health Services’ positive outlook for the year, which anticipates adjusted EBITDA-NCI growth of 7.8% at the midpoint of their guidance for 2025. According to InvestingPro data, five analysts have recently revised their earnings estimates upward, and the company maintains a "GREAT" financial health score of 3.34 out of 5.

The company has reported a stabilization in the labor market, with wage inflation and the use of temporary labor normalizing. This, combined with sustained demand, is expected to contribute to the company’s financial performance. Moreover, Universal Health Services is set to overcome the additional malpractice expenses it faced in 2024, which is factored into the improved financial outlook.

Universal Health Services’ revenue projections for 2025 include a 5% to 6% increase in Acute top-line growth, attributed equally to price and volume changes. The company’s Same-Store Behavioral Health (SS BH) revenue is projected to grow by 6% to 8%, with the increase primarily driven by core pricing rather than volume. This builds on the company’s strong performance, with InvestingPro data showing revenue growth of 10.82% in the last twelve months, reaching $15.83 billion, and maintaining healthy profit margins above 42%.

The 2025 guidance does not account for the potential net benefits from the Tennessee and D.C. programs that are awaiting approval from the Centers for Medicare & Medicaid Services (CMS). If approved, these programs could provide additional upside to EBITDA. Despite this, the company’s forecasted aggregate Disproportionate Share Hospital (DSH) Payment Program benefit is expected to be approximately $997 million in 2025, which is a slight decrease from the $1.016 billion received in 2024. This decrease is mainly due to out-of-period payments received the previous year.

In light of these factors, Stephens analyst Scott Fidel has increased the EBITDA estimates and the price target for Universal Health Services, indicating a stable outlook for the company’s financial growth in the upcoming year. Trading at a P/E ratio of 10.71, InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which covers over 1,400 US stocks with detailed financial analysis and expert recommendations.

In other recent news, Universal Health Services Inc. (UHS) reported strong financial results for the fourth quarter of 2024, surpassing analyst expectations. The company achieved an adjusted earnings per share (EPS) of $4.92, well above the anticipated $4.14, and exceeded revenue forecasts with $4.11 billion against the expected $4.01 billion. UHS’s operational performance was robust, with cash from operating activities increasing to $658 million in Q4 2024 from $452 million in the same period the previous year. The company has also been strategically expanding its healthcare facilities, contributing to its financial success.

Additionally, UHS plans further growth, with new hospital openings expected to positively impact EBITDA in 2025. Analysts have taken note of the company’s performance, with Barclays (LON:BARC) and RBC Capital Markets analysts engaging in discussions about future growth prospects during the earnings call. The company also addressed potential challenges, such as changes in Medicaid supplemental payments and labor market trends, while maintaining a positive outlook for the coming year.

Universal Health Services remains focused on efficient operations and strategic expansions, with plans to enhance its behavioral health services and expand its outpatient presence. Despite challenges in the payer environment and potential impacts from policy changes, UHS continues to demonstrate resilience and adaptability in its strategic planning.

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