Select Medical Unveils 2013 Outlook

Select Medical Holdings Corporation ( SEM - Snapshot Report ) unveiled its guidance for 2013. It expects earnings per share in 2013 between 98 cents and $1.04 on net operating revenues of $2.95 billion–$3.05 billion. The Zacks Consensus Estimate for 2013 is $1.02 per share, near the mid point of the guidance.

The company also expects to deliver adjusted earnings before interest, tax depreciation and amortization (EBITDA) in the range of $400 million–$415 million in 2013.

Select Medical took into account an adverse impact of $5 million and $10 million annually on net income and adjusted EBITDA, respectively, for its Outpatient Rehabilitation segment. The expected negative effect will likely stem from a multiple procedure payment reduction change included in the American Taxpayer Relief Act of 2012, effective for outpatient therapy services from April 1, 2013.

However, the guidance excludes the adverse effects of sequestration cuts if it comes into effect on or about April 1, 2013. Nevertheless, if effective, the adverse impact might be about $20 million on net operating revenues and Adjusted EBITDA.

Select Medical estimates effective tax rate at about 40% for 2013.

During its third-quarter conference call, Select Medical reiterated its 2012 guidance. It expects adjusted earnings per share in the range of $1.01–$1.06. The Zacks Consensus Estimate was $1.04 per share, within the guided range. Including the loss from early retirement of debt in the third quarter of 2012 and its related tax effect, the company estimates 2012 reported income in the range of 99 cents–$1.04.

It expects to generate net operating revenues in the range of $2.9 billion–$2.975 billion in 2012, while adjusted EBITDA is guided to a range of $400 million–$410 million.

Over the last 30 days, only 1 of the 7 estimates was revised higher for 2013. Given that the company has raised its outlook for 2013 from that of 2012, we believe that more estimates would be north bound. This in turn will provide an upside on its Zacks Rank. Currently, Select Medical carries a Zacks #2 Rank (Buy).

Aetna Inc. ( AET - Analyst Report ) , which competes with Select Medical, had provided a cautious outlook for 2013 in mid December last year. Aetna expects earnings per share to be at least $5.40 in 2013. It also reaffirmed the 2012 EPS expectation of $5.10. Revenues for full-year 2012 are projected to be approximately $35.5 billion, and full-year 2013 revenues are projected to grow approximately 9% compared with 2012. The guidance excludes the positive accretion anticipated from the Coventry acquisition, which is likely to close next year. Aetna carries a Zacks # 3 Rank (Hold).