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Bull Of The Day: Select Medical Holdings (SEM)

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Select Medical Holdings (SEM - Free Report) is a Zacks Rank #1 (Strong Buy) and it has some solid Zacks Style Scores.  On top of that, the chart looks wonderful and yesterday there was what looks to be a solid breakout.  Let’s take a look at this stock in today’s Bull of the Day article.

Description

Select Medical is a healthcare company with approximately 36,050 employees throughout the United States. It owns long term acute care and inpatient rehabilitation hospitals, as well as occupational health and physical therapy clinics.

The company began operations in 1997. As of Dec 31, 2018, it operated 96 critical illness recovery hospitals in 27 states, 26 rehabilitation hospitals in 11 states, and 1,662 outpatient rehabilitation clinics in 37 states and the District of Columbia.

Recent Earnings

The first thing I like to look at is the recent earnings history.  The last four quarters tell you most of what you need to know about a stock… do they beat on a consistent basis?  Or are the analysts pretty much dead on with their estimates?

SEM has 1 beat, 1 miss and 2 meets over the last four quarters.  The reason we are looking at this stock today is because the most recent quarter was the beat.  It was a big beat too.

On October 31, the company reported EPS of $0.33 when $0.22 was expected.  The $0.11 difference translates into a 50% positive earnings surprise.

The company went on to guide Wall Street higher, calling for $1.07 - $1.13 when the consensus was at $1.03.  Revenues guidance comes in at $5.375B - $5.425B vs the $5.31B estimate.

That report really helped the stock surge over the last month or so.  The question is, can that surge continue?

Earnings Estimates

Stock prices tend to follow the move in earnings estimates.  The Zacks Rank will tell you which stocks have the best earnings estimate revisions.

SEM is seeing good earnings estimate revisions for this year and next year.  I see next quarter moving from $0.33 to $0.35 and that is reflected in the full year number which has moved from $1.05 to $1.12.  Both of those moves have come in the last 60 days, which is the extent of the window for movements to impact the Zacks Rank.

The 2020 Zacks Consensus Estimate has moved from $1.25 to $1.35 over that same time period.

Valuation

The Forward PE for SEM is sitting at 19.8x which is not really that high considering the 10% topline growth.  The price to book multiple of 3.3x has the value players interested, just not drooling.  The 0.5x sales isn’t what I want to see, but margins are looking better and better.

This stock has a great looking chart and broke out yesterday.  There is a good chance we see $25 before the next earnings if the broader market remains solid.

Chart

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