DCF Studio

    UHS · NYQ · Healthcare

    Universal Health Services, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 283.40

    Market price

    USD 176.69

    Implied upside

    +60.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.7% of revenue against depreciation of 3.9%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 283.40+60.4%
    Exit multiple
    USD 232.62+31.7%
    Market price
    USD 176.69

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 18.9bnUSD 20.6bnUSD 22.5bnUSD 24.5bnUSD 26.7bn+9.0%
    EBITUSD 1.8bnUSD 2.0bnUSD 2.1bnUSD 2.3bnUSD 2.5bn+9.0%
    NOPATUSD 1.4bnUSD 1.5bnUSD 1.7bnUSD 1.8bnUSD 2.0bn+9.0%
    Add depreciation & amortisationUSD 737.3mUSD 803.9mUSD 876.4mUSD 955.5mUSD 1.0bn+9.0%
    Less capital expenditureUSD -1.1bnUSD -1.2bnUSD -1.3bnUSD -1.4bnUSD -1.5bn+9.0%
    Less increase in working capitalUSD 30.3mUSD 33.0mUSD 36.0mUSD 39.3mUSD 42.8m-9.0%
    Free cashflow to firmUSD 1.1bnUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.6bn+9.0%
    Discount factor0.96010.88510.81590.75220.6934-
    Present valueUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bn+0.5%
    Present Value Of The ForecastUSD 5.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.041Reported 1.061, pulled toward 1.0 (Blume)
    Cost of equity10.72%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 10.4bn66.8% of capital
    Total debtUSD 5.2bn33.2% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.48%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 283.40

    77% of EV

    Forecast FCFF, final year
    USD 1.6bn
    Capex at depreciation, working capital in reinvestment
    USD 2.0bn
    Less reinvestment at g/ROIC (24.6% of NOPAT)
    USD -492.5m
    Capitalised
    USD 1.5bn
    ROIC (reported)
    10.1%
    Terminal value, undiscounted
    USD 25.8bn
    Terminal value, discounted
    USD 17.9bn
    Enterprise value
    USD 23.3bn
    Less net debt
    USD 5.0bn
    Equity value
    USD 18.3bn

    Exit at 5.9x EBITDA

    Value per shareUSD 232.62

    73% of EV

    Terminal value, undiscounted
    USD 21.1bn
    Terminal value, discounted
    USD 14.6bn
    Enterprise value
    USD 20.0bn
    Less net debt
    USD 5.0bn
    Equity value
    USD 15.0bn

    Spread between methods: 20%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.48%415.86437.21463.65497.35541.99
    7.48%331.89342.68355.40370.73389.63
    8.48%272.08277.39283.40290.32298.41
    9.48%227.34229.61232.05234.71237.65
    10.48%193.68194.63195.57196.52197.46

    Outlined: this model. Green text: above today's price of 176.69. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year9.0%1.0%-8.0pp
    EBIT margin9.5%6.8%-2.6pp
    Discount rate8.5%11.2%+2.7pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.