Universal Health Services: A Better Buy Than Tenet Health Care and HCA Holdings?

Source: Thinkstock

Source: Thinkstock

Universal Health Services Inc. (NYSE:UHS) is a fantastic health care stock that you should most definitely have on your radar. Sure you could choose from a competitor like Tenet Health Care (NYSE:THC) or HCA Holdings (NYSE:HCA), but why bother? I say this because Universal Health Services is outpacing both Tenet Health Care and HCA Holdings in its margins and is pretty close on all related metrics.

The company itself owns and operates acute care hospitals, behavioral health centers, surgical hospitals, ambulatory surgery centers, and radiation oncology centers. Very similar business models to Tenet Health Care as well as HCA Holdings. The company’s hospitals offer various services, including general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services, and/or behavioral health services. It has operations in the United States, Puerto Rico, and the U.S. Virgin Islands. So why not but Tenet Health Care or HCA Holdings? The answer is that Universal Health Services is outperforming.

In its most recent quarter Universal Health Services blew numbers away. Net income attributable to Universal Health Services was $151.7 million, or $1.51 per diluted share, during the quarter compared to $151.8 million, or $1.53 per diluted share, during the comparable quarter of 2013. Further, net revenues increased 10.0 percent to $2.02 billion as compared to $1.83 billion during the second quarter of 2013.

This growth is outpacing Tenet and HCA Holdings thus far in 2014. Total reported net income attributable to Universal Health Services was $289.7 million, or $2.89 per diluted share, during the first six months of 2014 as compared to $271.6 million, or $2.75 per diluted share, during the comparable period of 2013. Net revenues increased 7.5 percent to $3.94 billion during the first six months of 2014 as compared to $3.67 billion during the comparable period of 2013. CEO Alan B. Miller stated, “We remain pleased with the underlying strength of our two businesses. The reduction in uncompensated care at our acute care hospitals resulting both from healthcare reform and improvements in the underlying economy partially reverses a trend that had been hindering our results for an extended period of time.”

Everyone needs some health care and/or biotech in their portfolios. At just nineteen times earnings with good growth, I think Universal Health Services is a better buy than Tenet Health Care as well as HCA Holdings. I like the potential moving forward for this stock and believe that a hike in the dividend is in the company’s future, provided it keeps this performance going. I rate shares a buy and assign a $118 price target.

Disclosure: Christopher F. Davis holds no position in any stocks mentioned and has no plans to initiate a position in the next 72 hours. He has a buy rating on Universal Health Services and a $118price target.

More from Business Cheat Sheet: