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Here's Why Select Medical (SEM) Stock Looks Attractive

Sapna Bagaria

Select Medical Holdings Corporation SEM has been in investors’ good books, owing to its consistently strong operating performance.

In the last reported quarter, the company beat estimates by 50%. Annual estimates for Select Medical have been northward bound over the past 30 days, reflecting analysts’ confidence in the stock. Over this period, the Zacks Consensus Estimate for current-year earnings climbed 4.7% to $1.12.

The stock carries a Zacks Rank #1 (Strong Buy) and a Value Style Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the value investing space.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Favoring the Stock

Strong Earnings Guidance: The company raised its earlier provided guidance for 2019. It now expects consolidated net operating revenues for 2019 to be in the range of $5.375-$5.475 billion (versus earlier guidance of $5.2-$5.4 billion); adjusted EBITDA between $685 million and $700 million (versus $660 million and $700 million expected earlier); diluted earnings per share in the range of $1.00 and $1.06 (versus $1.00 to $1.16 as per the earlier guidance); adjusted earnings per common share to be in the range of $1.07-$1.13 (versus $0.97 to $1.13 projected earlier).

Increasing Top Line: The company’s revenues have been increasing over the years. Its revenues witnessed a CAGR of 13.5% (2014–2018) and was up 7% in the first nine months of 2019. This growth has been achieved on the back of its leadership position and reputation as a high-quality, cost-effective healthcare provider in each of its business segments, which allow it to attract patients and employees, aid in marketing efforts to referral sources, and helps to negotiate payor contracts. For 2019, the company expects net revenues to be in the range of $5.375 billion to $5.475 billion, up 6.7% year over year (calculated at the mid-point).

Acquisitions: A number of acquisitions made by the company over the years have aided its inorganic growth. It is well positioned to capitalize on consolidation opportunities within each of its business segments, which operate in a highly fragmented market and selectively augment the company’s internal growth. With its geographically diversified portfolio of facilities in the United States, its footprint provides a wide-ranging perspective on multiple potential acquisition opportunities.

Concentra Segment Poised to Grow: The acquisition of U.S. HealthWorks in 2018 has driven growth in the company’s Concentra segment led by increased visits, decreased patient turnaround times and enhanced staffing efficiencies. Concentra is the nation’s largest provider of occupational health services. This segment’s expanded national footprint, coupled with its focus on quality care and patient/client satisfaction, gives the company a distinct competitive advantage and will drive growth opportunities for the rest of 2019 and beyond. The segment’s revenues grew 5% year over year in the first nine months of 2019.

Year to date, the stock has gained 44% compared with the industry’s growth of 12.3%.  The company has performed better than other stocks in the same space such as Cigna Corp. CI, Anthem Inc. ANTM and Humana Inc. HUM, which were up 2.8%, 8.9% and 19.3%, respectively.

 

 

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