A Hospital Pro The Pros TrustBy
Hospital-management companies have been ice cold despite the sizzling stock market. Their earnings are down, and several states have uncovered unethical practices by some hospitals, including misdiagnoses, mistreatment of patients, and fraudulent insurance claims. But one company, Universal Health Services, is starting to attract smart-money investors. Thanks to Chairman and CEO Alan Miller's ability to keep the company profitable--and out of trouble--big investors such as Julian Robertson, Lee and Perry Bass, Airlie Group, and Neuberger & Berman have bought in.
Miller has a top-notch record in hospital management. He founded American Medicorp, where he was chairman and CEO until Humana acquired it in a hostile takeover in 1978. Embittered by his defeat, Miller set up Universal in 1979. He controls 50% of the voting shares.
Universal owns and operates 15 acute-care and 13 psychiatric hospitals in 14 states. It has been profitable from the start, but some investors believe it has just begun to make money.
Earnings of $1.45 a share are expected for 1991, with more than $2 seen for 1993, up from 1990's 84c. And if Universal's "secret plan" takes off, earnings this year and next could be much higher. One investor believes Universal will soon be setting up surgery centers--highly profitable day clinics where surgeons could treat patients quickly and less expensively.
Once Universal gets into surgery centers, its stock could attract a higher p-e than those accorded other hospitals--in the 20s, says one investor. Now selling for $14 a share, Universal trades at a p-e of 10. This pro thinks the stock "could double in a year."
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