Grappled with the uncertainty related to the coronavirus breakout, Select Medical Holdings Corporation SEM has withdrawn its earlier-provided guidance for 2020.
The company’s 2020 net operating revenues were expected in the range of $5.575-$5.675 billion (up 3.2% year over year), adjusted EBITDA between $725.0 million and $760.0 million (up 4.4% year over year) and diluted earnings per common share in the $1.27-$1.46 (up 8.9% year over year) band.
Select Medical has been performing impressively over the past many years, evident from its revenue CAGR of 12.2% from 2014 to 2019. It also witnessed adjusted EBITDA CAGR of 14.3%. Further, the company reported a free cash flow of $288 million which was, however, down 13.5% year over year. The company’s free cash flow per share of $1.74 is better than the industry average of $1.22.
However, its high-debt level in its capital structure raises a concern. Its net debt-to-capital is 80.2%, much higher than the industry’s average of 24.8%. Also, its interest coverage ratio of 2.32 times is much lower than its industry average of 10.73 times.
Select Medical operates the majority of its critical illness recovery hospitals as a hospital within a hospital (an HIH). As an HIH, it typically leases space from a general acute care hospital or “host hospital” and operates as a separately-licensed hospital within the host hospital. Patients suffering chronic critical illness are typically admitted to the company’s critical illness recovery hospitals from general acute care hospitals and are likely to stay in a unit similar to intensive care. Now since the number of admissions at hospitals fell significantly following the postponement of elective procedures to accommodate any potential spike in the COVID-19 cases, the supply of business to Select Medical naturally took a big hit.
Select Medical is one of the largest providers of post-acute care, operating 101 critical illness recovery hospitals across 28 states. It enters the list of other hospitals in the United States that discarded their earnings guidance due to business disruption from the COVID-19 breakout. It won’t be much of a surprise to see aggressive cost-cutting efforts from Select Medical in order to preserve its margins.
Year to date, the stock has lost 8.6% compared with its industry's decline of 27.3%.
Most recently, Tenet Healthcare Corporation THC and MEDNAX Inc. MD scrapped their 2020 earnings outlook.
Moreover, leading hospital company HCA Healthcare, Inc. HCA laid off some of its employees and slashed wages to control costs.
The COVID-19 pandemic is anticipated to deal a significant blow to the hospital industry that has been hugely cash-strapped and debt-ridden.
Select Medical carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Tenet Healthcare Corporation (THC) : Free Stock Analysis Report
HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report
MEDNAX, Inc. (MD) : Free Stock Analysis Report
Select Medical Holdings Corporation (SEM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research