Healthcare Sector Ideas

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Universal Health Services -->>> 4 Conservative Growth Stocks Selling At Very Attractive Prices



Forbes

7-14-15


http://www.forbes.com/sites/wallaceforbes/2015/07/14/4-conservative-growth-stocks-selling-at-very-attractive-prices/2/



Margard: Mark will discuss a couple of stocks and then I’ll review a couple.

Mark Broughton: I’ll mention a couple of stocks that we purchased over the past year. The first one is a company that is directly leveraged to a topic that has been in the headlines lately — specifically the Supreme Court’s recent upholding of the Obamacare subsidies.

Universal Health Services (NYSE: UHS) is a facilities-based hospital company in the U.S. that is the dominant participant in behavioral health services — assisting and servicing the needs of the mentally ill.

The company is leveraged to a number of different improving insurance dynamics, many of which are tied to the Obamacare expansion of coverage for the uninsured, and thus benefits quite a bit from the upholding of subsidies and the current state of the Affordable Care Act (ACA).

It’s not quite as leveraged to some of those improvements as a traditional hospital is. A majority of the behavior health business is administered through the Medicaid programs. A significant portion of the Obamacare legislation was about the expansion of Medicaid programs in a number of different states. We believe now that the ACA has been upheld by the Supreme Court, the additional states will continue the process of expanding their Medicaid populations, which will benefit Universal Health Services in the future.

In addition, the environment for reimbursement within behavioral health continues to be quite stable and positive. So the reimbursement picture has definitely improved over a number of months. Additionally, a third of its business is in traditional acute care hospital facilities. And the economic recovery continues to help many of its geographic markets. It is quite concentrated in a few markets that have been especially strong, notably Texas, California, and Nevada.

The continued job growth and improvement in unemployment in these markets is also a very good backdrop for its overall environment. In Las Vegas, for example, the unemployment rate ran north of 15%, but is now down to just above 7%. That improvement directly affects the ability of various patients to have payment and reimbursement.

As a result of these factors, volumes have improved over the last few quarters. It is in the early phase of continued sustainability of those trends and as volumes continue to grow through these facilities, it is able to leverage the large fixed-base cost that it has employed. Taking the combination of improved regulations with the improved economy, there exists a very strong environment for hospitals, and UHS in particular, is well positioned to outperform on a forward basis.

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