Universal Health (NYSE:UHT) is a health care REIT that invests in health care and human service-related facilities among others acute care hospitals, behavioral health care hospitals, specialty facilities, free-standing emergency departments, childcare centers, and medical/office buildings. As of December 31, 2021, UHT owns a diversified, across 21 states, portfolio of assets consisting of 75 facilities:
A UHT’s characteristics worth to be mentioned it’s the uninterrupted history of growing dividend payments, 35 consecutive years with a CAGR of approximately 1.45%, a trend that is likely to continue supported by the population ageing.
UHT trades at a P/FFO of 14.79x which is below the sector median of 17.82x (-11.9%) and well below its historical median P/FFO of 20.22x (-22.4%).
Along with being undervalued on a P/FFO basis, the company carries an attractive forward dividend yield of 4.8%. Such dividend yield not only looks attractive but is also relatively safe given the company history and the Company's balance sheet. In fact, the Company's Net Debt/EBITDA sits at 5.32x (below the 5.5x I like to see) and it presents an interest coverage ratio of 6.82x.
However, as we can see from the table above, the adjusted EBITDA growth over the last 4 years is almost zero (CAGR 18-21 is equal to 0.08%), while the Company's revenue grew at a CAGR of 3.38%. Moreover, over the last 4 years, the aggregate revenues generated from UHS-related tenants grew from being only 30% in 2018 to 37% in 2021.
Let's consider some risks now, namely:
I rate shares as a BUY because I believe that potential returns overweigh potential risks. The company presents not only a healthy balance sheet, but it is also trading at an attractive valuation based on the fundamentals and technical analysis.
In particular, I would be a buyer in the area around $53.5/share or a P/FFO of 14.5x and a seller in the area around $66.5/share or P/FFO of 18.0x. Nonetheless, the current price of $57.96/share looks attractive.
Finally, below I provide some statistics for the stock over the last 5 years.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in UHT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.