Universal Health: A Spreading Glow

Anybody who thinks the hospital business is in poor health should talk to Alan Miller, the upbeat CEO of Universal Health Services (UHS). Business has been so good that Universal has acquired five hospitals in the past six months. No wonder big investors have stayed with the hospital-management company. UHS shares have more than doubled since mid-1993, climbing from 12 to 26 on May 9. Fidelity Management is the largest stakeholder with 11%. Another influential holder: global investor George Soros, with 4%.

What's behind Universal's appeal? "It's just plain cheap for what's going on in its business," says one investor. Adds Todd Richter, an analyst at Dean Witter Discover: "Compared with the other hospital-management companies we follow, UHS remains inexpensive." Richter is impressed with its solid balance sheet, strong cash flow, and book value of $20 a share. Based on Richter's 1995 earnings estimate of $2.35 a share, the stock is trading at a price-earnings ratio of 11. The hospital group's p-e ranges from 10 to 23.

One New York mutual-fund manager believes UHS has received feelers on a buyout or merger offer from several big players. The approaches have been friendly so far, says this pro, because the company has four different types of stock, designed to thwart an unfriendly takeover. Some 40% of the voting stock is controlled by Miller, who bought more shares this year.

"The fact that the CEO holds a lot of the stock wouldn't deter a takeover--if the price is right," says the fund manager. Miller will only concede that he has "been approached" more than once. Some analysts say the stock would be worth 35 to 40 in a buyout or merger.

Miller says Universal may spin off part of its assets to shareholders. Universal owns and operates acute-care and psychiatric hospitals and ambulatory surgery and radiation centers. It also owns a managed-care organization. Psychiatric admissions, which have lagged behind in past quarters, "have improved, posting a better-than-expected 11.9% same-facility increase in the first quarter," says Richter.

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