Select Medical Downgraded to Strong Sell - Analyst Blog

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Zacks Investment Research downgraded Select Medical Holdings Corporation ( SEM ) to a Zacks Rank #5 (Strong Sell) on Nov 30, 2013.

Why the Downgrade?

Select Medical has witnessed downward estimate revisions after reporting mixed third-quarter 2013 results. Over the last 30 days, estimates declined with the 2013 Zacks Consensus Estimate going down by 4.3% to 90 cents per share (representing a year-over-year decline of 16.36%). The Zacks Consensus Estimate for 2014 also declined 7% to 93 cents per share over the same period with estimates moving downwards. Select Medical delivered negative earnings surprise in two of the last three quarters with a negative average surprise of 4.5%.

On Oct 31, Select Medical reported third-quarter earnings per share of 17 cents, missing the Zacks Consensus Estimate by 2 cents and the year-ago earnings by 3 cents. The decline was mainly attributable to Medicare sequestration cuts and a reduction in the Medicare revenue per patient day.

The quarter witnessed a 2.7% increase in operating expenses owing to high cost of services, general and administrative expenses and bad debt expenses. This increase overpowered the 1.3% increase in revenues and led to a margin contraction. Moreover, depreciation and amortization expenses also increased for Select Medical owing to losses incurred by start-up companies and joint ventures.

In terms of the financial position of the company, Select Medical experienced a year-over-year decline in operating cash flow in the first nine months of 2013. The debt-burden of the company also increased over the first nine months of 2013 when compared to year-end 2012.

The company also expects to incur a negative $15 million impact after mitigation from the 25 per cent rule in 2014, higher than that estimated earlier (between $5 million and $10 million).

Other Stocks to Consider

Some better-ranked stocks in the healthcare services space include Centene Corp. ( CNC ), Acadia Healthcare Company, Inc. ( ACHC ) and VCA Antech Inc. ( WOOF ). All these stocks hold a Zacks Rank #2 (Buy).



ACADIA HEALTHCR (ACHC): Free Stock Analysis Report

CENTENE CORP (CNC): Free Stock Analysis Report

SELECT MEDICAL (SEM): Free Stock Analysis Report

VCA ANTECH INC (WOOF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ACHC , CNC , SEM , WOOF

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