r/valueinvesting
Is UHS undervalued?
Analyzes UHS's low P/E and strong FCF, questioning if wage and policy risks justify its 52-week low; initiated a small position.
- Trading near 52-week low with solid fundamentals, low trailing P/E (6.12), and reasonable P/B ratio.
- Steady business growth, controlled costs, increasing gross margins, and strong positive free cash flow.
- Significant shareholder returns through $967M in buybacks alongside $824M FCF.
- Potential wage increases due to a shortage of nurses could pressure margins.
- Possible future reductions in federal government payments (e.g., end of Obamacare) pose revenue risks.
I've been looking into UHS stock lately, as it's trading near its 52w low and the fundamentals seem solid. I started by looking at the following metrics, and they all seem nice:
\-trailing P/E = 6,12 (considering price / diluted EPS)
\-price to book = 1,20 (altough it goes to 2,6 if you remove Goodwill from assets)
\-current Ratio = 1,05
The business has been growing steadily, and costs seem to be under control, with gross margins increasing.
Cash flow is positive (in 2025 FCF is $824M plus $967M of buybacks) and growing.
I've read that the stock is down because the market is already pricing in potential wage increases (mainly due to a shortage of nurses) and possible future reductions in payments from the federal government (the end of Obamacare?). I admit that I'm not able to properly evaluate this part not being American. Those reasons do not seem to me to fully explain a price so low anyway.
Do you think I'm missing something here?
Disclaimer: I initiated a (small) position in UHS in the previous days.
Hey I wanted to applaud you in picking UHS. of the 50 tickers in the S&P that are under 10 P/FCF you got one!
Probably one of the most consistent companies that have fallen into this bucket of really low P/FCF.
It’ll go back up but I prefer HCA. HCA is buying up a bunch of hospitals and is associated with Rick Scott a US Senator who’d never allow his gravy train to die.
Unfortunately, there is a lot of truth to this. Also there are many House of Representatives and Senators on their payroll. Virtually most of TN, FL and TX. That is significant political power.
Yup. Healthcare is a massive machine. The only way to beat it is to own it. At least if my MRI is $1000 I get some dividends through HCA profits.
Nice find. I ran it through peer benchmarking tool and the bull case holds up - ROIC and ROCE well above peer median, operating margin around 74th percentile, FCF yield flagged at \~13%. The revenue consistency is real too, this isn't a lumpy business. The thing your post glosses over a bit is liquidity. Current ratio at the 25th percentile vs peers, cash-to-debt at the 8th. That's thin. And the Medicaid risk isn't speculation anymore - legislation passed mid-2025 adds work requirements and caps provider fees. UHS flagged it directly in their own filings. So you've got a strong-but-thin operator about to face real reimbursement pressure. That's probably what the market is chewing on. Underlying business quality is genuinely there, but the low multiple might be doing some legitimate work. Worth watching how the Medicaid cuts play out before sizing up.
Thanks, that's something to think about. I sure plan to go deeper as it seems to me to have potential.