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Shares of Select Medical Holdings (SEM) have been strong performers lately, with the stock up 10.8% over the past month. The stock hit a new 52-week high of $41.42 in the previous session. Select Medical Holdings has gained 48.5% since the start of the year compared to the 2.7% move for the Zacks Medical sector and the 14.8% return for the Zacks Medical - HMOs industry.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on May 6, 2021, Select Medical reported EPS of $0.82 versus consensus estimate of $0.65.
For the current fiscal year, Select Medical is expected to post earnings of $2.56 per share on $6.11 billion in revenues. This represents a 35.45% change in EPS on a 10.37% change in revenues. For the next fiscal year, the company is expected to earn $2.91 per share on $6.26 billion in revenues. This represents a year-over-year change of 13.67% and 2.47%, respectively.
Select Medical may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Select Medical has a Value Score of A. The stock's Growth and Momentum Scores are C and D, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 16.1X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 12X versus its peer group's average of 16.9X. Additionally, the stock has a PEG ratio of 1.07. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Select Medical currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Select Medical fits the bill. Thus, it seems as though Select Medical shares could have potential in the weeks and months to come.
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