Universal Health To Buy Cambian Group Arm For UK Expansion
Zacks Investment Research | Dec 05, 2016 10:28PM ET
In an effort to expand its presence in the U.K., Universal Health Services, Inc. (NYSE:UHS) is planning to buy the adult services division of Cambian Group, PLC for a total purchase price of £377 million (or approximately $479 million).
Year to date, the company has gained 4.3% compared with a decline of 9.8% witnessed the Zacks categorised Medical Hospital industry. The superior performance by the company is backed its strong business featured by a well-diversified business model, several acquisitions made over the past few years that are contributing to top-line growth, strong capital structure and capital access.
The company expects to close its latest planned takeover by Dec 31, 2016. The deal will add 81 behavioral facilities with 1,193 beds to the Cygnet family in the U.K.
In 2015, the company had acquired Alpha Hospitals Holdings Limited – a provider of low and medium secure mental health care facilities and services – in the U.K. In the same year it also bought Orchard Portman House Hospital, a 46-bed behavioral health care facility near Taunton.
In 2014, Universal Health acquired Cygnet Health Care along with its 17 facilities, including 15 inpatient behavioral health hospitals and two nursing homes with 723 beds.
With the latest acquisition, Universal Health will have a total of 102 facilities with approximately 2,250 beds in the U.K.
Acquisitions have been a key growth catalyst for Universal Health over the past few years. We believe that the company will continue to pursue inorganic growth aggressively to expand its international footprint.
Though the company has been growing its top line with the help of several acquisitions lapped over the past few years, it is now mired in uncertainty with the president-elect Donald Trump being an ardent proponent of the Obamacare repeal. The Affordable Care Act (ACA) under Obama greatly benefited the hospital company by increasing the number of insured population which led to a decline in bad debts, an eye sore for the companies in this sector.
A greater number of insured patients meant low incident of bad debts which shielded margins. Now that Trump is eager to repeal most parts of the Act, Universal Health is deeply concerned about the new act will look and affect its earnings.
Despite the regulatory uncertainty, the stock has gained 4.5% since the election of Donald Trump, significantly outperforming the Medical Hospital industry which remained unchanged during the same time frame. Now, any change in the ACA could leave millions of Americans uninsured and unable to pay for hospitalization, thus leading to higher bad debts which would ultimately cut into the profits of the players in the industry. Though the company has performed better than the sector, we believe the changes, if any, made to the law, will not leave the company unaffected. Other players in the same industry like HCA Holdings, Inc. (NYSE:HCA) , LifePoint Health Inc. (NASDAQ:LPNT) and Tenet Healthcare Corporation (NYSE:THC) share similar concerns.
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Universal Health Services carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .
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