On Monday, Goldman Sachs (NYSE:GS) adjusted its stance on Universal Health Services (NYSE:UHS), downgrading the stock from Buy to Neutral and setting a price target of $197.00. The shift in rating comes as the firm anticipates policy risks to take a more dominant role, potentially causing the stock to remain range bound until these uncertainties are more clearly defined and factored into future estimates and valuations.
According to InvestingPro analysis, UHS currently trades at a P/E ratio of 12.25 and shows strong financial health with a "GREAT" overall rating, suggesting the stock may be undervalued despite current concerns.
The downgrade was influenced by a reassessment of the potential impact of policy changes on the company's financial outlook. Although Universal Health Services' valuation has decreased from a peak of 9.2x next twelve months (NTM) EBITDA on September 24, 2024, to the current 7.5x, historical patterns during periods of uncertainty suggest there could be further downside.
Goldman Sachs has remained neutral on the specifics of any policy outcomes, particularly changes to Medicaid or the Affordable Care Act (ACA), which could pressure EBITDA in the next year. Notably, InvestingPro data reveals that UHS maintains a perfect Piotroski Score of 9, indicating exceptional financial strength. Get access to the comprehensive Pro Research Report and 8 additional key insights about UHS on InvestingPro.
The firm highlighted that while they have not included any specific EBITDA pressures from policy changes in their models, there are multiple potential sources of downside to the 2026 and beyond estimates. Consequently, the risk-reward profile for Universal Health Services is not deemed attractive at the current levels by the analysts at Goldman Sachs.
Since being added to Goldman Sachs' Buy List on December 11, 2023, Universal Health Services' shares have seen a 30% increase in value, which closely tracks the S&P 500's gain of 31% over the same period. This performance benchmark was part of the consideration in the firm's recent rating update.
In other recent news, Universal Health Services (UHS) has seen a series of adjustments in stock targets and ratings from various analyst firms. TD Cowen reduced UHS's stock price target from $275.00 to $251.00 but maintained its Buy rating, reflecting a cautious stance due to potential policy shifts and market dynamics. The firm also expressed confidence in UHS as a top pick for 2025, anticipating a 15-20% upside to consensus estimates in the coming months.
In contrast, BofA Securities downgraded UHS from a Buy to a Neutral rating, adjusting the stock target to $223 due to potential risks. Meanwhile, KeyBanc Capital Markets maintained its Sector Weight rating on UHS shares, indicating an expectation of average sector returns. Other firms such as Cantor Fitzgerald, RBC Capital Markets, and Deutsche Bank (ETR:DBKGn) also adjusted their price targets for UHS.
These recent developments coincide with UHS's declaration of a $0.20 per share cash dividend, emphasizing the company's commitment to its shareholders. The company also reported a net income of $3.80 per diluted share and an 8.6% revenue growth. As UHS plans facility openings in Las Vegas, D.C., and Florida, it projects a 6% to 7% revenue growth in acute care and mid-to-upper single-digit revenue growth in the behavioral health segment in 2025.
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