UHS

Universal Health Services is having an excellent run that the market is pricing as if it will reverse. FY2025 revenue grew 9.7% to $17.4B, operating income rose 18.6% to $1.99B, and net income jumped 30.4% to $1.49B, lifting diluted EPS 37.3% to $23.10. The company earns a 20.5% return on equity, is deleveraging (long-term debt down 10.3% to $4.00B), and returned capital aggressively — $968M of buybacks (+44.3%) plus a dividend. Yet at $141.17 the stock trades at just 6.1x earnings, a multiple that implies the market expects significant earnings erosion.

The reason is policy, and it is explicit in the 10-K. The One Big Beautiful Bill Act (enacted July 4, 2025) adds Medicaid work requirements that limit enrollment, and caps/reduces the provider-fee mechanism states use to draw federal Medicaid funding. UHS estimates this will reduce its aggregate annual net benefit by approximately $432 million to $480 million by 2032, phasing in on a roughly pro-rata basis starting with the 2028 state fiscal years. Separately, enhanced ACA premium tax credits expired at year-end 2025 (a three-year extension, H.R.1834, was passed by the House in January 2026 but remains uncertain in the Senate), which could reduce exchange enrollment and raise uncompensated care. UHS is also Medicaid-concentrated, drawing ~$100M+ annually from each of many states.