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Weekly Issue #14
Universal Health Services (UHS) — $194.35 at Friday’s close
Universal Health Services runs 29 general hospitals in the United States and more than 340 psychiatric hospitals and treatment centres in the US, the UK and Puerto Rico. It has made a profit in each of the last twelve years, and its earnings per share went from $5.42 in 2014 to $23.10 in 2025. Last year it earned about 20% on shareholders’ equity.
It hands most of its cash back to shareholders. It produced $849 million of free cash flow in 2025 and has bought back so much stock that its diluted share count is 41% lower than in 2014. At Friday’s close of $194.35 it cost 8.1 times its last four quarters of earnings ($23.91 a share) and 8.5 times the middle of its own 2026 forecast.
Earnings per share have more than quadrupled since 2014. The price is about eight times what it now earns in a year.
Why it fell
From its November 2025 high of $244.18 the stock fell 42%, to $141.17 in June. It is still 20% below that high, while HCA, the largest hospital company, is about where it was then. So part of the fall is Universal Health’s own: the shares dropped 11.4% the day its fourth-quarter results came out in February, on what press reports called weaker admissions, and 9.5% after its first-quarter report in April. Part of it is Washington. The extra federal subsidies for marketplace health insurance lapsed at the end of 2025, and more patients now arrive uninsured: the discounts its hospitals gave uninsured patients came to $1.1 billion in the third quarter, at list prices, up from $716 million a year earlier. (List prices overstate it; the company puts the actual cost of all its unpaid care in the quarter at $115 million.) Last year’s federal budget law will also start reducing the Medicaid top-up payments states make to hospitals, from 2028. In July the company lowered its 2026 earnings forecast by 2.6% at the midpoint.
The vote, again
Last week I wrote that the midterm vote moved Western Alliance’s price and left the bank alone. This one is different, because hospitals are paid partly through the very programs the new Congress will vote on. On November 4, the day after Democrats won both houses, Universal Health rose 10.9%, HCA 10.3% and Tenet 9.6%. Press reports tied the jump to hopes that a Democratic Congress restores the insurance subsidies and delays the Medicaid cuts. The House passed a three-year extension in January. It never became law, and any new law needs the signature of a president whose term runs to January 2029.
So that one-day jump, part of a 38% rebound from the June low, rests on a law that does not exist yet. The case here rests on the earnings record, and it does not need Congress to act.
How much comes from Washington
This is the number that matters most. Many states pay hospitals extra on top of regular Medicaid rates, funded partly by taxes the hospitals themselves pay. In the first nine months of this year Universal Health’s net benefit from those programs was $1.21 billion. That is revenue for care the hospitals deliver, with costs against it, so it isn’t profit on its own. Set beside the company’s $1.36 billion of pre-tax income over the same months, though, it shows how much of the margin rides on the programs. The company expects the benefit to shrink by about $500 million a year by 2032, starting in 2028.
Universal Health Services (UHS) — $194.35 at the Nov 13 close, down 11% this year
| The check | Reading | Verdict |
|---|---|---|
| Price to earnings | 8.1× | ✓ Last four quarters ($23.91 a share, including a $1.13 one-time investment gain); Ben Graham’s limit is 15 |
| On the 2026 forecast | 8.5× | ✓ The company expects $22.28 to $23.65 a share, adjusted |
| Price to book | 1.47× | ✓ September 30 book; P/E times P/B is about 12, well under Graham’s 22.5 |
| Return on equity | 20.5% | ✓ 2025 profit on year-end shareholders’ equity |
| Profitable years | 12 of 12 | ✓ 2014 to 2025, earnings per share up in 10 of them |
| Free cash flow yield | 7.6% | ✓ $849 million in 2025 |
| Diluted shares | −41% | ✓ Since 2014, from buybacks |
| Dividend | 0.4% | ⚠ $0.80 a share a year; paused for most of 2020 |
| Medicaid top-ups | $1.21B | ⚠ Net benefit in the first nine months of 2026; set to shrink from 2028 |
| Debt | $5.7B | ⚠ 43% of capital after the Talkspace purchase |
Price ratios at the Nov 13 close, earnings over the last four quarters, balance sheet at September 30. The Universal Health page on Travis Valuation → reads it 58% undervalued, an average of five formulas that includes two built on the company’s past growth. The three that assume no growth average $241.08, and the price is 19% below them. The page uses the audited 2025 annual report; the September 30 figures are shown here.
The catch
Beyond Washington, three things. The dividend is a token 0.4%, and it was paused for most of 2020. Debt rose to $5.7 billion this year from $4.8 billion, with the buybacks and the August purchase of Talkspace, the online therapy company, for about $835 million. And its psychiatric division has had a hard year: Medicare ended its agreement with a San Antonio hospital in April, Utah revoked the licences of two youth treatment campuses in July, and a children’s psychiatric hospital in Virginia has faced lawsuits over inappropriate sexual contact by a former medical director, an independent contractor. A jury found the hospital liable to the first three plaintiffs in 2024, and in August the company reached a tentative settlement of the remaining claims; the terms are confidential.
What I can’t know
What Congress does. The subsidy extension passed the House in January and is not law. Any new law needs the president’s signature.
How fast the top-ups shrink. The company’s own estimate is about $500 million a year less by 2032. Some programs, Florida’s among them, are still waiting on federal approval.
What 2027 looks like. The forecast comes with the fourth-quarter report, around late February.
Skin in the game
I do not own Universal Health, and I will not buy any until after this letter has gone out. No Universal Health insider has bought shares on the open market in the past twelve months; one director sold about $128,000 in March. The founding Miller family controls about 91% of the votes through special share classes.
Ben Graham wrote that a margin of safety is there so you don’t need an accurate forecast of the future. Here the forecast runs through Washington, which is where an accurate one is hardest to make.
Which account?
Universal Health pays $0.20 a share a quarter, $0.80 a year, about a 0.4% yield. The 15% US withholding comes to about 12 cents a share a year if your broker has a W-8BEN form on file for you. The withholding does not apply inside an RRSP. In a non-registered account you can claim it back as a foreign tax credit. In a TFSA it is lost, which at this yield costs very little. With a stock like this the price is the whole case: a gain is tax-free in a TFSA, and in a non-registered account only half of it is taxable. General information, not tax advice.
The workfile
Everything above is the short version. The workfile has the price path date by date, the Medicaid and insurance figures from the filings, twelve years of earnings, the buybacks and the debt, every valuation method on one page, the lawsuits as the company describes them, and the source for each figure. It’s in this week’s workfile →
Your turn 👇
Which stock should we run through the checks next? Hit reply with a ticker.
Send me your pick →Curtis Travis, B.Comm, AACI (retired), is the founder of Travis Valuation. He does not own Universal Health Services, the subject of this issue. He owns shares of VICI Properties, Lennar, Amazon, Walmart, Costco, TD, Scotiabank, Dick’s, Berkshire Hathaway and OMAB, all named in past issues. Prices, ratios and earnings are as of the Nov 13, 2026 close or the latest filing, from market data and Universal Health’s own SEC filings; the valuation figures are from the Universal Health page on Travis Valuation. The reason for the November 4 move is as reported by the press. Prices move. Informational only — not a recommendation, and not tax advice. Do your own diligence.