U.S. Physical Therapy
(USPH - Get Report)
operates outpatient physical and occupational-therapy clinics. Ostensibly, it appears to be more growth than value. But, as Buffett notes, those that differentiate between growth and value tend to misunderstand his philosophy. U.S. Physical has boosted sales 15% a year, on average, since 2007. It expanded net income 25% a year, on average, over that span as its stock delivered annualized gains of 8.4%.
Columbia's Ryan Coyle argues that U.S. Physical is a compelling value investment given secular demand growth, free cash flow and the opportunity to acquire in a fragmented marketplace. Citing the Bureau of Labor Statistics, Coyle notes that U.S. demand for physical therapy will grow 4% a year through 2016 as Baby Boomers undergo operations and injury. A demand shift and a shortage of therapists suggest that the therapy market is rife with opportunity for U.S. Physical, which held $7.2 million of cash and $4.3 million of debt in the second quarter.
The company will report third-quarter results Nov. 4. Second-quarter profit grew 23% to $4.5 million, or 38 cents a share, as revenue ascended 4.5%. U.S. Physical beat the earnings consensus by 4.7%, but its stock declined 0.6% on the news. The operating margin rose from 16% to 18%. Return on equity widened from 13% to 14% and return on assets climbed from 9.6% to 10%. U.S. Physical is loved by the sell-side. All six analysts covering the stock rate it "buy." A median target of $21.50 suggests a looming 12-month return of 13%.
Based on peer valuation, U.S. Physical is inexpensive, but not downright cheap. It trades at a trailing earnings multiple of 17, a forward earnings multiple of 14, a book value multiple of 2.3, a sales multiple of 1.1 and a cash flow multiple of 7.7, on par or at slight discounts to health-care-provider industry averages.
Institutional investors tell a different story than brokerages. In the latest quarter, 10 of the stock's 30 largest holders purchased more shares, 17 reduced their positions and two held steady.
stock model, which is notably conservative, rates U.S. Physical "buy" with an overall grade of A-minus and a price target of $24.33.
-- Written by Jake Lynch in Boston.