Leveraging the strength of its franchise,
Select Medical Holdings Corporation
) delivered a 29.2% earnings surprise in the second quarter and
raised its guidance for 2012. This marks the sixth straight quarter
with a positive earnings surprise for this specialty hospital
The favorable results led to strong estimate revisions, which
helped SEM achieve a Zacks #1 Rank (Strong Buy) on August 9, 2012.
With a price-to-book (P/B) multiple of just 1.64 and a
price-to-sales (P/S) ratio as low as 0.51, this stock offers a
promising value proposition for investors.
Strong Second Quarter
On June 30, Select Medical reported a 268.4% year-over-year surge
in its second quarter net income to $43.2 million. Its adjusted
earnings per share of 31 cents beat the Zacks Consensus Estimate by
29.2% and the year-ago earnings by 55%.
Net operating revenues moved up 7.4% year over year to $750.2
million, beating the Zacks Consensus Estimate by 2.9%. While
revenues from the smaller Outpatient Rehabilitation segment moved
up 8.2% to $193.1 million (25.7% of revenues), revenues for
Specialty Hospitals rose 7.1% to $557.1 million (74.3% of
Company-wide adjusted EBITDA moved up 10.4% to $110.3 million in
the reported quarter. At the segment level, adjusted EBITDA margin
for Specialty Hospitals improved somewhat to 18.3% from 17.5% a
year ago, while that of Outpatient Rehabilitation declined slightly
to 13.4% from 13.7%.
The company continued to have substantial long-term debt (excluding
current portion) of about $1.34 billion, down slightly on a
Select Medical raised its 2012 forecast for earnings per share to
between $1.01 and $1.06 (earlier 86 cents and 94 cents).
Consolidated revenues are expected in the neighborhood of $2.90
billion to $2.98 billion (earlier $2.85 billion to $2.95 billion).
Earnings Estimates Gain Ground
All seven estimates have been revised higher for 2012 in the last
30 days, which has propelled the Zacks Consensus Estimate by 10.5%
to $1.05. This represents earnings growth of 25.0%.
Five of seven estimates have been revised higher for 2013 over the
same time frame, boosting the Zacks Consensus Estimate by 6.2% to
Although shares plummeted last autumn, they have since recovered to
current levels. In addition to low P/B and P/S multiples, the stock
is currently trading at a forward P/E multiple of 9.95. Going by
the usual indicators of a P/E multiple below 15.0, a P/B ratio
under 3 and a P/S ratio less than 1.0 for a value stock, Select
Medical appears to be undervalued.
The PEG ratio for the stock is 0.85, based on a 3- to 5- year
earnings per share growth rate of 11.7%. This metric is at a 15%
discount to the generally accepted yardstick of 1.0 for a fairly
valued stock. It implies favorable growth potential as well.
Founded in 1996 and based in Mechanicsburg-Pennsylvania, Select
Medical manages its operations through two segments, namely the
Specialty Hospitals segment and the Outpatient Rehabilitation unit.
The Specialty Hospitals unit comprises hospitals catering to the
requirements of long-term stay acute patients and facilities
intended to serve patients who need intensive medical rehab care.
Eligible enrollees are usually admitted to Specialty Hospitals from
acute care hospitals. Such enrollees usually have serious and
complex medical conditions. The company operates 111 long-term
acute care hospitals and 12 acute medical rehabilitation hospitals
in 28 states. The company also operates outpatient rehabilitation
clinics at 956 locations.
Select Medical has a market capitalization of about $1.48 billion.
Among others, the company competes with HEALTHSOUTH Corp. (
) in certain niches.
SELECT MEDICAL (SEM): Free Stock Analysis
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