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Select Medical Holdings Corporation SEM has emerged as a lucrative investment option, courtesy of growing revenues on the back of strong segmental performances. Strategic buyouts and strong cash flows have also been acting as tailwinds.
The stock currently has a Zacks Rank #1 (Strong Buy) and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank of 1 or 2 (Buy), offer the best opportunities in the value investing space.
Factors Driving the Company
Impressive Earnings Surprise History: Select Medical boasts an impressive earnings surprise record. It has surpassed estimates in each of the trailing four quarters, the average surprise being 242.41%.
Positive Estimate Revision: The Zacks Consensus Estimate for 2021 earnings has been revised upward by 47.7% over the past 30 days, reflecting investor optimism.
Solid Prospects: The Zacks Consensus Estimate for the company’s 2021 earnings indicate growth of 18% from the year-ago reported figure. The expected long-term earnings growth rate is 15%, higher than the industry’s average expectation of 12.3%.
Consistently Increasing ROE: The company has generated a consistent improvement in return on equity (ROE) from 2017-2020. As of Dec 31, 2020, the company’s trailing 12-month ROE of 22% remains higher than the industry’s ROE of 21.6%, reflecting its tactical efficiency in utilizing shareholders’ funds.
Undervalued: Price-to-earnings (P/E) is one of the multiples used for valuing healthcare stocks. The company’s valuation seems cheaper looking at its trailing 12-month P/E ratio of 14.3 compared with the industry’s average of 16.6.
Solid Guidance: For 2021, Select Medical anticipates revenues in the range of $5.65 billion to $5.85 billion, the mid-point of which indicates an improvement of 4% from the 2020 reported figure. Earnings per common share for this year are projected to lie between $2.26 and $2.48, the mid-point of which suggests growth of 22.8% from the 2020 reported figure. A positive outlook is indicative of the company’s strong business fundamentals.
Business Tailwinds: Revenues at Select Medical have grown consistently since 2010. During 2020, the company’s results were buoyed by higher patient days across its Critical Illness Recovery Hospital and Rehabilitation Hospital segments. Also, it’s worth mentioning that volumes have started improving in the company’s Outpatient Rehabilitation and Concentra segments.
The company intends to bolster its network of rehabilitation hospitals through either strategic buyouts or joint ventures with well-established healthcare systems. These initiatives, in turn, have broadened the reach of Select Medical across several U.S. regions including the underserved ones. The company’s illness recovery hospitals have proven to be of great use for catering to patients infected with the COVID-19.
Moreover, the company has solid cash generating abilities, which empowers Select Medical to invest funds for boosting growth prospects. The company also has a $500 million revolving credit facility, which has not yet been put to use. Management remains optimistic about generation of free cash flow between $450 million to $500 million in a year.
Shares of Select Medical have gained 21% on a year-to-date basis compared with the industry’s rally of 0.1%.
Other Stocks to Consider
Some other top-ranked stocks in the medical space include Meridian Bioscience, Inc. VIVO, Community Health Systems, Inc. CYH and Hologic, Inc. HOLX. While Meridian Bioscience sports a Zacks Rank #1, Community Health and Hologic carry a Zacks Rank #2 .
Meridian Bioscience, Community Health and Hologic have a trailing four-quarter earnings surprise of 101.79%, 120.75% and 54.30%, on average, respectively.
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Hologic, Inc. (HOLX) : Free Stock Analysis Report
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