Is It Too Late to Consider Universal Health Services After Its Strong Multi Year Rally?

• Wondering if Universal Health Services is still worth buying after its big run, or if the easy money has already been made? You are not alone. A lot of investors are rechecking the numbers right now.
• The stock is trading around $222.64 after slipping about 1.2% over the last week and 1.1% over the last month, but it is still up 23.9% year to date and 22.4% over the past year. Zooming out further, shareholders have seen gains of 66.5% over 3 years and 68.3% over 5 years.
• Much of this performance reflects a broader shift back into defensive healthcare names as investors look for resilience amid macro uncertainty. Hospitals and behavioral health operators like Universal Health Services have been front and center in that narrative. At the same time, policy debates on healthcare reimbursement and ongoing sector consolidation have kept risk perceptions fluid, which helps explain some of the recent share price volatility.
• According to our checks, Universal Health Services scores a solid 5 out of 6 on valuation, suggesting it looks undervalued on most of the metrics we track. Next we will walk through what each of those valuation approaches is really saying, then finish with a more holistic way to think about what the stock might be worth.

Universal Health Services delivered 22.4% 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 estimates what a business is worth by projecting its future cash flows and discounting them back to today in dollar terms. For Universal Health Services, the latest twelve month free cash flow is about $1.0 billion, providing a solid starting point for forecasting.

Analysts expect free cash flow to grow to around $1.31 billion by 2027, and Simply Wall St then extrapolates this trajectory further, reaching roughly $1.77 billion by 2035. These projections, combined with a 2 Stage Free Cash Flow to Equity approach, are discounted back to the present to account for risk and the time value of money.

Putting it all together, the DCF model suggests an intrinsic value of about $569.48 per share. Compared with the recent share price near $222.64, this implies the stock could be around 60.9% undervalued, assuming the cash flow forecasts prove realistic.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Universal Health Services is undervalued by 60.9%. Track this in your watchlist or portfolio, or discover 910 more undervalued stocks based on cash flows.

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, established businesses like Universal Health Services, the price to earnings ratio is a useful way to gauge how much investors are paying for each dollar of current profits. In general, companies with stronger growth prospects or lower perceived risk tend to justify higher PE ratios, while slower growing or riskier firms usually trade on lower multiples.

Universal Health Services currently trades on a PE of about 10.1x, which is well below both the Healthcare industry average of roughly 23.6x and the broader peer group average of around 23.8x. To go a step further, Simply Wall St uses a proprietary Fair Ratio, which estimates what a reasonable PE should be after factoring in the company’s earnings growth outlook, profitability, risk profile, industry positioning and market cap. This holistic Fair Ratio for Universal Health Services comes out at about 23.1x, which makes it more tailored than a simple comparison with peers or the sector average.

With the current PE of 10.1x sitting far below the Fair Ratio of 23.1x, the multiple-based view also points to the stock trading at a meaningful discount.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1463 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose Your Universal Health Services Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple stories investors build around a company to explain what they think its future revenue, earnings and margins will look like, how that translates into a fair value, and whether today’s price is attractive or not.

A Narrative links three pieces together in a straightforward way: the business story, a financial forecast, and then a fair value estimate that you can compare against the current share price to decide if you want to buy, hold or sell.

On Simply Wall St, millions of investors explore and create Narratives on the Community page, using an easy interface that lets you plug in your own assumptions and then automatically see what fair value those assumptions imply.

Because Narratives on the platform update dynamically as new information comes in, such as earnings results or major policy news, your view on Universal Health Services can stay current rather than relying on a static snapshot.

For example, one investor might think outpatient behavioral demand and margin expansion justify a fair value closer to $280 per share, while another more cautious investor, focused on policy and reimbursement risks, may land nearer $165. Narratives help you see exactly which assumptions bridge that gap.

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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