Universal Health Services closed at $194.35 on November 13, 2026: 8.1 times its last four quarters of GAAP earnings, 8.5 times the midpoint of its own 2026 forecast, 1.47 times book value, with a 2025 free cash flow yield of 7.6%. Its earnings per share rose from $5.42 in 2014 to $23.10 in 2025, and it has made a profit in every one of those years. The shares fell 42% from November 2025 to June 2026 and have recovered 38% since; they rose 10.9% on the day after the midterm vote.
The business has grown its earnings for a decade. In the first nine months of 2026, Medicaid top-up payments brought in $1.21 billion of revenue; pre-tax income for the whole company was $1.36 billion.This workfile does five things. It describes the company and its latest quarter (section 1). It sets out the price path with the dated event behind each large move, including the day after the vote (section 2). It shows how much of the profit depends on government programs (section 3). It puts the earnings, the cash and every valuation measure on the page (sections 4 to 7). And it lists the balance sheet, the lawsuits, who controls the company and what would change the conclusion (sections 8 to 10).
Universal Health earned $23.91 a share over the last four quarters, earned about 20% on its year-end equity in 2025 and has cut its diluted share count by 41% since 2014, and at the date of value it was priced at 8.1 times earnings. The position taken here rests on that record and requires the Medicaid top-ups and the lapsed insurance subsidies to change slowly enough for the business to adjust.
Universal Health Services, based in King of Prussia, Pennsylvania, runs two businesses. Its acute care division operates 29 hospitals and 35 free-standing emergency departments. Its behavioural health division runs psychiatric hospitals and treatment centres: 346 inpatient facilities, 182 in the United States, 161 in the United Kingdom and 3 in Puerto Rico. In all it had 375 inpatient and 168 outpatient and other facilities in 40 states, Washington, D.C., the United Kingdom and Puerto Rico (10-K, February 25, 2026). In 2025 acute care brought in about 57% of revenue and behavioural health about 43%, on total revenue of $17.4 billion.
In August it bought Talkspace, an online therapy company, for about $835 million ($5.25 a share in cash).
| Quarter to September 30, 2026 | Amount | Against a year earlier |
|---|---|---|
| Net revenues | $4.73B | +5.3% (from $4.50B) |
| Net income attributable to UHS | $308.7M | −17% (from $373.0M) |
| Diluted earnings per share | $5.22 | $5.86 a year earlier ($5.69 adjusted) |
| Adjusted EBITDA net of minority interests | $624.6M | $670.6M a year earlier |
| Acute care, same-facility adjusted admissions | +4.9% | Revenue per adjusted admission −1.7% |
| Behavioural health, same-facility net revenue | +4.0% | Adjusted admissions +2.5% |
| Medicaid supplemental programs, net benefit | $400M | $403M a year earlier (10-Q) |
| Share repurchases | $242.1M | 1.35M shares at about $179 |
Source: the third-quarter release (8-K, October 27, 2026) and 10-Q. The third quarter of 2025 included $90 million of Medicaid catch-up payments for Washington, D.C., which is most of the fall in quarterly earnings. Over nine months, adjusted earnings per share rose 6.0% to $16.83, and revenue rose 7.7%.
| Date | Close | Event | Source |
|---|---|---|---|
| November 26, 2025 | $244.18 | Closing high of the last 52 weeks | Market data |
| February 26, 2026 | $230.73 to $204.33 (−11.4%) | Fourth-quarter results and the first 2026 forecast; press reports cited weaker admissions. Peers: HCA −2.7%, Tenet +1.1% | 8-K; press reports (secondary) |
| April 28, 2026 | $179.51 to $162.54 (−9.5%) | First-quarter results; the cause of the size of the fall is not established. HCA −3.1%, Tenet −4.3% | 8-K |
| June 18, 2026 | $141.17 | Closing low of the last 52 weeks, 42% below the high | Market data |
| July 14, 2026 | $152.77 to $144.23 (−5.6%) | Hospital stocks fell together (HCA −6.9%, Tenet −5.7%, Community Health −8.3%); cause not established | Market data |
| July 28, 2026 | $159.31 to $166.22 (+4.3%) | Second-quarter results and a lowered 2026 earnings forecast; hospital stocks rose more (HCA +7.3%, Tenet +7.9%) | 8-K; market data |
| October 28, 2026 | $177.32 to $172.18 (−2.9%) | Third-quarter results, released after the close on October 27; HCA +3.0%, Tenet +2.5% the same day | 8-K; market data |
| November 4, 2026 | $177.13 to $196.46 (+10.9%) | The day after the midterm vote; HCA +10.3%, Tenet +9.6%, Community Health +16.1% | Market data; see below |
| November 13, 2026 | $194.35 | Date of value | Market data |
At the date of value the stock was 20% below its November 2025 high, 38% above its June low, down 10.9% this year and down 14.6% over twelve months. From the November 2025 high to the date of value, HCA Healthcare was down 3.0%, Tenet up 31.6% and Community Health down 35.4%, while the health care sector fund rose 19.2%.
On November 4, the first trading day after Democrats won the House and at least 54 Senate seats, hospital stocks were among the largest gainers: Universal Health rose 10.9%, HCA 10.3%, Tenet 9.6% and Community Health 16.1%. Press reports tied the move to expectations that a Democratic Congress would try to restore the enhanced insurance subsidies that lapsed on December 31, 2025 and to delay Medicaid cuts (247wallst and Becker’s, secondary). The House passed a three-year extension of the subsidies (H.R. 1834) on January 8, 2026, according to press reports; it has not become law, and the 10-Q says only that the subsidies expired on December 31, 2025. A new law needs the president’s signature, and the current term runs to January 2029. Unlike most stocks on a day of political news, this one has a direct link to the question being voted on, which is why section 3 sets the figures out.
Medicaid supplemental payments. Many states pay hospitals above their regular Medicaid rates through supplemental and directed-payment programs, funded partly by taxes the hospitals themselves pay. Universal Health reports the net benefit: $1,016 million in 2024, $1,339 million in 2025 and $1,584 million projected for 2026 (10-K; 10-Q). In the first nine months of 2026 the net benefit was $1,211 million, against consolidated pre-tax income of $1,362 million; a year earlier the figures were $969 million and $1,391 million. The two figures are not the same thing: the payments are revenue for care the hospitals deliver, with costs against it, not profit on their own. But they show how much of the margin depends on the programs. The company says the 2025 federal budget law will reduce the annual benefit, starting with states’ 2028 fiscal years, by about $500 million by 2032, on a roughly even schedule.
The lapsed insurance subsidies. The enhanced federal subsidies for marketplace insurance expired at the end of 2025. The 10-Q says this “has unfavorably impacted insurance exchange enrollment and has increased the level of uncompensated care that we provide.” In the acute care hospitals, discounts given to uninsured patients, measured at charges, were $1,105 million in the third quarter against $716 million a year earlier, and $3,197 million against $2,103 million over nine months. The company estimates the cost of all uncompensated care in the third quarter at $115 million.
Both figures can move with a law, a regulator’s approval or a state budget. That is the risk the price carries, and the reason the stock moved on election news.
Earnings per share have risen in ten of the last eleven years. Over the last four quarters the company earned $23.91 a share: $7.06, $5.65, $5.98, $5.22. The fourth quarter of 2025 included an unrealized gain of $71.5 million after tax, $1.13 a share, on a minority stake in a health care artificial intelligence company; without it the last four quarters come to $22.78. The company’s adjusted earnings were $21.74 a share in 2025.
| Line | February | July 27, revised |
|---|---|---|
| Net revenues | $18.417 to $18.789 billion | $18.501 to $18.762 billion |
| Adjusted earnings per diluted share | $22.64 to $24.52 | $22.28 to $23.65 |
Source: the fourth-quarter 2025 and second-quarter 2026 releases. The July revision lowered the midpoint of the earnings forecast by 2.6%. The third-quarter release did not update the forecast; it described results against it and noted a net $21 million of items outside it.
| Year | Operating cash flow | Capital spending | Free cash flow | Buybacks, incl. shares withheld for tax |
|---|---|---|---|---|
| 2021 | $884M | $856M | $28M | $1,221M |
| 2022 | $996M | $734M | $262M | $833M |
| 2023 | $1,268M | $743M | $525M | $547M |
| 2024 | $2,067M | $944M | $1,123M | $671M |
| 2025 | $1,864M | $1,015M | $849M | $968M |
Universal Health spends most of its free cash flow, and in some years more, on buying back its own shares. In 2025 it bought 4.65 million shares for $899.3 million; in the first nine months of 2026, 3.915 million for $689.6 million at about $176. $735.4 million of authority remained at September 30. The dividend is $0.20 a share a quarter, 0.4% at the date of value. Cash flow statements show one quarterly dividend paid in 2020 and payments resuming in 2021.
| Measure | Reading | Note |
|---|---|---|
| Price to earnings, last four quarters (GAAP $23.91) | 8.1× | Sum of the four quarters’ diluted EPS; Graham’s ceiling is 15 |
| Price to earnings, without the fourth-quarter 2025 investment gain | 8.5× | $22.78 a share; the gain was $1.13 a share |
| Price to the company’s adjusted earnings, last four quarters | 8.6× | $22.71 a share (company non-GAAP) |
| Price to the midpoint of the 2026 forecast | 8.5× | Adjusted EPS of $22.28 to $23.65 (July 27) |
| Price to book ($131.77 a share) | 1.47× | Goodwill is 62% of equity after the Talkspace purchase |
| Free cash flow yield, 2025 | 7.6% | $849M (operating cash flow less capital spending) on a market value of $11.2B |
| Enterprise value to 2026 adjusted EBITDA (forecast midpoint) | 6.3× | Market value plus $5.7B of debt, less cash |
| Return on equity | 20.5% | 2025 net income of $1,488.8M on year-end equity of $7,275.8M (10-K); the app shows 18.7% on its own basis |
| Graham Number (app) | $253.61 | √(22.5 × EPS × book), 2025 annual report |
| Earnings power value, A and B (app) | $256.67 and $212.96 | Earnings with no growth, capitalized at 9% and at the AAA bond yield |
| Average of the three no-growth methods | $241.08 | The price is 19% below it |
| Graham 1962 and 1974 formulas (app) | $917.85 and $659.89 | Use a 15.6% historical EPS growth rate |
| Average of all five (app headline) | $460.19 | The price is 58% below it |
| Reverse DCF (app) | 1.5% | The yearly growth the price implies |
| Acquirer’s multiple (app) | 8.05× | Enterprise value to operating earnings |
Reading the spread. The app’s headline average includes the two Graham growth formulas, which apply the company’s past 15.6% earnings growth rate and come out far above the price. The three methods that assume no growth average $241.08; the price is 19% below that, and it is the reading this workfile relies on. The reverse DCF says the price assumes earnings grow about 1.5% a year. The question is whether earnings can hold near $22 to $24 a share while the Medicaid top-ups shrink; they do not have to grow for the no-growth methods to support the price.
| Test | Universal Health | Result |
|---|---|---|
| Adequate size | Market value about $11.2B | Pass |
| Current ratio of 2 or more | 1.37 at September 30, 2026 | Fail |
| Long-term debt below net current assets | $5.7B against $1.0B | Fail |
| Positive earnings in each of the last ten years | 2016 to 2025 (and 2014 and 2015) | Pass |
| Twenty years of uninterrupted dividends | One quarterly dividend paid in 2020, resumed in 2021 | Fail |
| Earnings per share up a third over ten years | $7.14 (2016) to $23.10 (2025) | Pass |
| Price to earnings of 15 or less | 8.1× | Pass |
| Price to book of 1.5 or less (or P/E × P/B of 22.5 or less) | 1.47× (product about 12.0) | Pass |
Universal Health passes five of Graham’s eight tests. Graham’s two balance-sheet tests were built for companies that hold inventory; a hospital company funds buildings and equipment with long-term debt, and both fail here. The dividend test fails because the dividend was paused for most of 2020. Price to book passes narrowly on the September 30 book value; on the 2025 annual report the app shows 1.57.
Warning signs. None of the app’s warning signs is triggered on the 2025 annual report: free cash flow and net income are positive, EPS, revenue and book value per share did not decline over three years, there was no dividend cut in the window, and debt does not exceed equity.
| September 30, 2026 | Amount | Note |
|---|---|---|
| Total debt | $5.7B | 43% of total capitalization, from 40% at December 31, 2025 |
| New notes, August 2026 | $1.1B | $600 million of 5.500% senior secured notes due 2031 and $500 million of 6.000% senior secured notes due 2036, which repaid $700 million of 1.650% notes due September 1, 2026 |
| Revolving credit available | $1,187M | Credit agreement matures September 2029 |
| Cash | $169M | |
| Shareholders’ equity | $7.6B | Goodwill $4.7B, of which $755.3M came with Talkspace |
| Current ratio | 1.37 | Current assets $3.68B, current liabilities $2.69B |
Source: the third-quarter 10-Q and the 8-Ks of August 13, 17 and 21, 2026. Talkspace closed on August 17, 2026, financed with a $400 million delayed-draw term loan and the revolver; the company recorded it at about $820 million net of cash acquired. The 10-Q puts 2026 capital spending at $900 million to $1.0 billion, against $950 million to $1.1 billion in the February forecast.
Who controls it. Universal Health has four classes of shares. The Class A and Class C shares made up 11.9% of the shares and 91.3% of the voting power as of March 23, 2026, and elect 5 of the 7 directors (proxy, April 2026). The 10-K says a substantial majority of them are controlled by Alan B. Miller, the founder, and members of his family, including Marc D. Miller, the chief executive. The publicly traded Class B shares carry one-tenth of a vote each.
Insiders. No director or officer bought shares on the open market in the twelve months to the date of value. The one open-market sale in the Form 4s:
| Date | Who | What |
|---|---|---|
| March 11 and 13, 2026 | Elliot J. Sussman, director | Sold 674 shares at $186 to $193, about $128,000 |
Cumberland Hospital. Cumberland, a children’s psychiatric hospital in Virginia owned by a subsidiary, is a defendant in lawsuits alleging inappropriate sexual contact during medical examinations by its former medical director, an independent contractor. In September 2024 a jury found the doctor and Cumberland liable to the first three plaintiffs and awarded $60 million of compensatory damages, $180 million of trebled damages under Virginia’s consumer protection law and $120 million of punitive damages, which the court reduced to $1.05 million. About 53 more claimants make similar allegations. The defendants have denied liability on the remaining claims. In August 2026 the company reached a tentative settlement of the outstanding claims of the current claimants; its terms are confidential, it is subject to final releases and court approvals, and the company says a substantial portion is covered by insurance. The third quarter included a $26 million increase in reserves (10-Q).
Other matters (10-Q). Medicare ended its agreement with Laurel Ridge, a 330-bed behavioural hospital in San Antonio, effective April 30, 2026; the hospital lost about $16 million before tax in the first nine months. Utah revoked the licences of two Provo Canyon School campuses in July 2026, and the company agreed to give up the adolescent licences. In Nevada, a jury awarded $4.7 million of compensatory and $500 million of punitive damages against a subsidiary in September 2025; the court granted a new trial for juror misconduct in March 2026 and vacated the verdict in the second quarter, and a retrial is expected in 2028.
This issue followed a screen of about 1,500 companies in the S&P 500, 400 and 600 on November 13, 2026. 558 traded at least 20% below their 52-week high; 150 of those were profitable in 2024 and 2025 at under 18 times 2025 earnings, and 146 were run through the app at the November 12 close.
Each reason below is dated to this week’s prices and filings. If one of these companies is picked later, that letter will open with what changed.
The author does not own Universal Health Services and will not buy any until after the letter accompanying this workfile has gone out. He owns shares of VICI Properties, Lennar, Amazon, Walmart, Costco, TD, Scotiabank, Dick’s, Berkshire Hathaway and OMAB, all named in past issues.
The position taken here: at the date of value Universal Health was priced at 8.1 times earnings and 1.47 times book, below the average of the app’s three no-growth methods, after a decade of rising earnings. A large part of its profit comes from Medicaid top-up payments that are set to shrink from 2028, and its rebound since June leans on a political outcome that has not happened yet. The condition to watch is whether earnings hold as those payments change.