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Select Medical (SEM) to Open 31-Bed Hospital in Northern Ohio

Select Medical Holdings Corporation SEM recently announced that the company intends to expand its footprint in Northern Ohio by opening a new critical illness recovery hospital. The facility is likely to come online early next year.

Select Medical is expected to open the 31-bed facility, branded as Select Specialty Hospital – Oregon, in Mercy Health - St. Charles Hospital’s fourth and fifth floors. Joining forces with Mercy Health - Toledo is a prudent move from SEM as it will reduce the burden of starting a new hospital from scratch. With the demand for specialized post-acute care in the region rising, Select Medical’s new hospital comes at an opportune time.

The new facility is expected to be a satellite unit of SEM’s Regency Hospital Toledo, located in Sylvania, OH. The company intends to rename the 45-bed hospital to Select Specialty Hospital – Toledo. Following the completion of these strategic moves, SEM will offer specialized post-acute care services in the region through a total of 76-bed hospital capacity.

The company ended last year with 104 critical illness recovery facilities in 28 states and 30 rehabilitation units in 12 states. It also had 1,881 outpatient rehabilitation locations in 38 states and the District of Columbia. The new hospital addition is expected to be followed by some similar moves from the company, which will boost its capacity and expand reach. This can help the company improve its cash flow situation.

Despite adopting multiple strategic moves to improve activities, the company’s cash from operations is drying up, reflecting operating weakness. In fact, in 2021, its net cash from operations reached $401.2 million, down from the year-ago period’s $1 billion. In the trailing 12-month period, its free cash flows after dividends declined nearly five-fold year over year, which is concerning. Also, the bottom line is expected to decline this year.

The Zacks Consensus Estimate for SEM’s 2022 bottom line is pegged at $2.16 per share, indicating a 27.5% year-over-year decline. It has witnessed two downward estimate revisions in the past 60 days versus none in the opposite direction.

Price Performance

Select Medical’s shares have declined 30.1% in the past year against a 37.4% increase of the industry it belongs to.

Zacks Investment Research
Zacks Investment Research

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Zacks Rank & Key Picks

Select Medical currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the medical space include Humana Inc. HUM, UnitedHealth Group Incorporated UNH and NextGen Healthcare, Inc. NXGN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in Louisville, KY, Humana is one of the largest health care plan providers in the United States. HUM’s acquisitions and dispositions, efficient capital deployment, and strong Medicaid business position it for long-term gains. Humana beat earnings estimates in each of the last four quarters, with the average being 3.1%.

UnitedHealth’s global business is now witnessing a recovery of membership and revenue figures. UNH’s favorable government business and strong capital position are other positives. Based in Minnetonka, MN, UnitedHealth beat earnings estimates in each of the last four quarters, with the average being 8.4%.

Headquartered in Irvine, CA, NextGen Healthcare develops and markets healthcare information systems. The Zacks Consensus Estimate for NXGN’s bottom line for the current quarter is pegged at 99 cents per share, indicating growth from the year-ago level. NextGen Healthcare beat earnings estimates in each of the last four quarters, with the average being 17.5%.

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