Universal Health Services (UHS)

Total return at 5 years: 21.8%/year = 21.5% appreciation + 0.3% dividend. The target price ($474) is ex-dividend; the $4 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $536 · Multiples $384) exceeds the market price ($179).

Today — with margin of safety: at $179 trades ~53.4% below its value discounted to today (~$384) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($474) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($179) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-12.7%/year) than we project (5.8%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.6 bn of owner earnings in year 5 (vs ~$1.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EBIT normalizado (suma de las partes, EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

TTM rolling grid (year 0 = TTM ended 30-Jun-2026, XBRL). Year 1 starts from the revised guidance of 27-Jul-2026 (8-K, Item 2.02), not from the historical trajectory: the company cut its revenue and adjusted earnings per share forecast for 2026 because the Florida Medicaid directed payment program was not renewed beyond September 2025 and no incremental benefit was included in the revised forecast. Guided FY2026 revenue at the midpoint of US$18.632bn implies +7.3% over FY2025 (US$17.365bn), below the recent trajectory (FY24 +10.8%, FY25 +9.7%, TTM +10%) — the deceleration is the guidance, not an analyst assumption. By year 5 the rate converges to ~4.5%, within the band of a mature hospital operator with favorable demographic demand but a structural ceiling: the federal law of July 2025 ("One Big Beautiful Budget Act") gradually reduces the cap on state provider taxes used to fund state supplemental Medicaid payments, with an estimated aggregate net impact of between US$432 and US$480 million a year by 2032, growing and phased in from state fiscal years 2028. It is a sum-of-the-parts company: two segments of different operating natures —acute care hospitals (57% of revenue, operating margin ~7% net of allocated corporate expenses, short-term reimbursement and greater Medicaid exposure) and behavioral health (43% of revenue, margin ~17%, with a growing weight from the United Kingdom funded almost entirely by the NHS)— are each valued with their own multiple within the hospital archetype band (EV/EBIT 9-13×), and the waterfall multiple is derived as the average weighted by each segment's share of terminal EBIT (60-64% of EBIT comes from behavioral health despite being 43% of revenue, because of its structurally superior margin). Maintenance capex is approximated with the method's default convention (half of total capex): total capex runs at 1.49× depreciation and amortization, a moderate multiple —not the 2× or greater headroom that triggers the Greenwald split— and consistent with an operator that combines replacement of existing beds/equipment with the continuous opening of new facilities (30 acute care hospitals at 30-Jun-2026, two more than a year earlier). Share repurchases are material and sustained (diluted shares from 73.8M in FY2022 to 59.9M in the quarter just closed, a reduction pace of approximately 5%/year over recent full fiscal years) and are modeled with an explicit share path, not by accumulating cash: the FCF that funds the buyback is not kept, so net cash and debt stay approximately stable over the horizon. The bear case stresses year 1 (growth well below guidance, reflecting a further Medicaid cut and staffing pressure) and the multiple compresses to the floor of the archetype band; the bull case assumes the successful integration of the Talkspace acquisition (behavioral telehealth, closing in the third quarter of 2026) and the renewal of the supplemental Medicaid programs. The year-0 operating margin is normalized (§2): the quarter includes US$100M —net of provider taxes— from the Florida managed Medicaid directed payment program and some US$21M of retroactive reimbursements from other states. Both are retroactive items: the Florida program covers the period from October 2024 to September 2025 and was only recognized now, when the federal authority approved the program increase in April 2026. Extrapolating them over five years would have inflated the entire path, so the year-0 margin falls from 11.36% to 10.69% and the whole path shifts by those 0.67 points, preserving the margin expansion the analysis projects rather than recalculating it against a different base. The Florida program was not renewed beyond September 2025, so the company's guidance for the current year no longer includes it.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $474 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $179, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $474 in 5 years plus $4 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $384. Against the current market price ($179), the margin of safety is 53.4% (trades below the maximum → there is margin) and the total return at that price would be 21.8% annually.

• Entry multiple. EV/EBIT on TTM below the floor of the hospital archetype band (9-13x)
• Margin of safety. There is a margin of safety: the market's perception is meaningfully worse than reality.
• Sensitivity to the terminal multiple. The verdict depends on the market eventually recognizing the margin mix between segments, not just growth

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ! CFROIC backs up the ROIC (80%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. FCF positive and growing over time, though with quarterly volatility from working-capital timing and self-insurance reserves
• ROIC vs the 10% bar. ~12.9% on real balance-sheet invested capital, above the bar but not in the exceptional range
• Reinvestment runway. Ongoing bed and hospital expansion, plus the Talkspace acquisition in digital behavioral health

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Acute care growth breaks down into volume (admissions +1.6% in 2025 on a same-facility basis) plus price/mix (net revenue per adjusted admission +5.4%); in behavioral health, the equivalent driver is adjusted admissions plus net revenue per adjusted admission, with the UK growing at a different pace since it depends almost entirely on NHS funding rather than private Medicare/Medicaid.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Current guidance. The FY2026 guidance revised on 27-Jul-2026 already incorporates the known Medicaid ceiling; it anchors the year-1 path
• Segment mix. EBIT growth increasingly depends on behavioral health, which has a higher margin but also greater UK exposure
• TAM. Favorable demographic demand (aging population) partially offset by the structural cut in public funding

• Demand recurrence. Demand for hospital and behavioral health services is structural, though reimbursement depends on shifting public policy
• Differentiation. Essentially a commodity service at the individual facility level; differentiation is regional, not brand-based
• Pricing power. Limited against Medicare/Medicaid (government-set rates); somewhat greater against private insurers due to regional scale
• Operating leverage. Moderate: the recent margin expansion (EBIT 7.5%→11.4% over three years) reflects scale more than pure operating leverage

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.8x
• ✓Interest coverage (EBIT / interest)12.7x
• –Liquidity (current ratio)no data
• !Cash quality (CFROIC vs ROIC)CFROIC backs 80% of ROIC
• !Value creation (ROIC − 10% bar)+2pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.5x
• !Float / working capitalConsumes cash $0.5 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Debt/EBITDA net of noncontrolling interest ~1.8x, moderate for the sector
• Liquidity. US$1,272 million of available capacity under the revolving credit facility as of 30-Jun-2026, plus a delayed-draw term loan reserved for Talkspace
• Maturities. The main maturity of the credit facility and term loan is September 2029, with no immediate refinancing pressure

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Alignment. Founding family holds ~89% of overall voting power via multiple-class shares; long-term alignment but concentrated governance
• Capital allocation. Sustained buybacks funded with operating cash (no material additional leverage), stable dividend, historically marginal M&A except for Talkspace
• Transparency. The company explicitly discloses the quantified impact of the Medicaid cut in its release, without downplaying it

• Sentiment cycle low: the stock fell on uncertainty over the Medicaid cut from the July 2025 law
• Cut guidance (partial motivated sellers): the downward revision of the FY2026 forecast on 27-Jul-2026, even though it already incorporates the known impact, triggered additional selling on the disappointment relative to prior consensus
• Sum-of-the-parts complexity: the market appears to value the consolidated entity at a single low multiple, without recognizing that the behavioral health segment -- 43% of revenue but ~64% of terminal EBIT -- deserves a distinct, higher multiple than acute care

There is no single dominant source of discount: it is a combination of sector-wide aversion to Medicaid regulatory uncertainty and a possible market simplification that fails to separate the two businesses with very different margins.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +7%/year (+41% total): the margin of safety protects the downside. The bull (+33%/year, +312% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Structural Medicaid. Estimated aggregate net impact of US$432 to 480 million annually by 2032, growing from 2028
• Geographic concentration. Texas, Nevada and California generate 44% of revenue and an even larger share of operating income
• Litigation. Ongoing litigation related to "Cumberland Hospital for Children and Adolescents," with an uncertain outcome
• Staffing. Nursing shortages and expanding minimum staffing requirements in California, with risk of replication in other states

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 1.4 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 13% (EBIT/EV) + ROIC 12% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -13% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +7%/yr, bull-scenario ceiling +32%/yr over 5y and a +53% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale, cost advantage → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -13%, within what we project (6%) — the story squares with the numbers.