U S PHYSICAL THERAPY INC /NV (USPH) stock intrinsic value fair value estimate & owner earnings analysis

U.S. Physical Therapy owns and runs about 780 outpatient physical-therapy clinics in 44 states, plus an industrial injury-prevention business that sends athletic trainers and ergonomists into employers' workplaces. Most clinics are partnerships: the company buys a majority stake in an established local practice and the therapists who built it keep a minority share and keep running it. Medicare paid about $213 million of 2025 patient revenue, so Medicare's physician fee schedule sets a large part of the price the company receives; for 2026 that schedule rises about 1.75%. How we measured earnings. Operating cash flow includes all of each clinic's cash, but the partner therapists own a real slice of it, and they are paid before shareholders: partner distributions were $19.3 million in 2025 and $14.7-16.9 million a year in 2021-2024. We start from operating cash flow, strip out swings in receivables and payables, subtract stock compensation and the capital spending needed to keep existing clinics running, add back cash interest (so we can value the business before its lenders and then subtract the debt once), and subtract the partner distributions. On that basis the business produced $3.79-$4.24 per share in each of 2021-2025, with a median of about $4.06, or roughly $61 million a year. We used 2021-2025 because the 2023 share issue, the 2024 Metro acquisition and a much larger clinic base make earlier years a different business; 2020 was also distorted by pandemic relief payments. Amortization of acquired patient relationships and the 2022-2023 goodwill write-downs ($9.1 million and $17.5 million) are added back as non-cash, but the write-downs are a reminder that some acquisitions lose value, and the bear case charges for that. Growth. Revenue grew from $357 million in 2016 to $781 million in 2025, but nearly all of that came from buying practices. Revenue from clinics open at least a year was flat in 2025 ($523.6 million versus $523.2 million). Acquisitions are a long-running, repeatable habit here, but the evidence that they create value for shareholders is thin: per-share business cash flow has been essentially flat since 2021 while about $320 million went into acquisitions and partner buyouts and the share count rose 17%. So the base case credits no growth in the existing clinics and treats future acquisitions as earning roughly what they cost. The two hospital alliances announced in February 2026 (60 Metro clinics in New York with a hospital system and 10 clinics elsewhere, both 10-year agreements) are signed, but their economics are not disclosed, so they are left out of the base case and appear only in the bull case. For reference, 2025 per-share business cash flow rose about 12% over 2024; the base case assumes no growth in year one, which is below that. Debt. At June 30, 2026 the company owed about $220 million: a term loan of roughly $173 million and $46 million drawn on its revolver, plus small seller notes, against $25 million of cash. The bank agreement matures on June 17, 2027, so the whole facility must be refinanced within the next year. The interest-rate swap that fixed most of the term loan's base rate at 2.815% also expires on June 30, 2027. At about 3.5 times annual business cash flow and with covenants met, refinancing looks routine, but interest will probably cost more once the swap ends. The cases. Base case: business cash flow stays at about $61 million a year, with Medicare rate changes and wage inflation roughly offsetting each other as they have since 2021, and acquisitions add value equal to what they cost. The business is worth about $1,020 million; subtracting about $197 million of net debt and a small earn-out leaves about $824 million, or $54.62 per share. Bear case: two shocks from the company's own history. First, a squeeze like 2022, when Medicare rate cuts and therapist wage inflation pushed per-share cash flow down about 13%. Second, a volume shock like 2020, when visits collapsed for months. Business cash flow falls to about $46 million at the trough and settles about 10% below today's level, then slowly shrinks. Future acquisitions destroy some value, as the 2022-2023 write-downs show they can, and refinancing in 2027 costs more. The business is worth about $750 million and owes about $209 million, leaving about $540 million, or $35.85 per share. Even at the trough, business cash flow covers interest about four times, so lenders stay comfortable. Bull case: established clinics grow about 1.5% a year from steady price and volume, the hospital alliances add margin as management says they will, and acquisitions earn somewhat more than they cost. The business is worth about $1,220 million against $197 million owed, about $1,024 million, or $67.92 per share. Our earlier figures were built on a different basis and are not comparable to these. Margin of safety price. We are fairly confident about the earnings level: five years of per-share business cash flow between $3.79 and $4.24, across Medicare cuts, wage inflation and a large acquisition. The risks are concentrated in two places. The first is Medicare policy. Physical therapy is paid on the physician fee schedule, which Congress has trimmed several years running, and a deeper multi-year cut that no case models is the most plausible serious harm. The second is the acquisition machine: if management keeps paying full prices for practices that later underperform, shareholder value leaks away quietly. The structure would survive either one. Debt is moderate, no customer is concentrated beyond Medicare, the clinics are small and spread across 44 states, and the partner model ties therapists to their clinics. If we are wrong about both Medicare and acquisitions at once, the shares look worth roughly the high $30s. Over the holding period, the company pays $1.84 a share in dividends, about $28 million a year, which is covered by cash flow after partner distributions. From $30, with those dividends, a recovery to roughly the base value within four to five years implies about a 20% annual return, and the bear value still sits above the margin-of-safety price. Above $30 the return depends too heavily on the base case playing out quickly. Our margin of safety price is $30.