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Select Medical (SEM) Rides on a Diversified Business Profile

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Select Medical Holdings Corporation (SEM - Free Report) looks poised for long-term growth on the back of its leadership position and cost-effective healthcare services in each of its business segments.  Its acquisition strategy also aids its organic growth. A geographically diversified portfolio of facilities in the United States enables Select Medical to bank on multiple potential acquisition opportunities.

The company suffered segmental softness with each, namely Critical Illness Recovery Hospital Segment, Rehabilitation Hospital Segment, Outpatient Rehabilitation Segment and Concentra Segment experiencing volume contraction during mid-March when state governments began placing significant restrictions. This caused a significant decline in patient volumes. However, since May, the governments began to ease rules, which gradually restored patient admissions, aiding volume growth in turn.

Good news is that in the first nine months of 2020, the company’s revenues saw a negligible 0.2% dip while its adjusted EBITDA margin improved 100 basis points.

Select Medical also streamlined its business by selling an outpatient rehabilitation unit, a rehabilitation hospital business and Concentra’s Department of Veterans Affairs community-based outpatient clinic business.

The company’s inorganic growth story is also impressive. Since the company’s inception in 1997 through 2018, it completed 10 significant acquisitions for $3.32 billion, the most notable deals being the buyouts of Physiotherapy, Concentra and U.S. Health Works. These integrations proved to be accretive to the company’s earnings.

Significantly, Select Medical is well positioned to capitalize on the consolidation opportunities within each of its business segments, which operate in a highly fragmented market and selectively augment the company’s internal growth. With its geographically-diversified portfolio of facilities in the United States, its footprint provides a wide-ranging perspective to multiple acquisition prospects.

Year to date, the stock has gained 15.8% compared with the industry’s growth of 3.41%.


Other companies in the same space, namely Community Health Systems, Inc. (CYH - Free Report) , Tenet Healthcare (THC - Free Report) and Da Vita Inc. (DVA - Free Report) have also rallied 166.9%, 6.6% and 53.3%, respectively, over the same time frame.

The stock carries a Zacks Rank #3 (Hold), currently. The Zacks Consensus Estimate for 2020 earnings has been revised 13.9% upward over the past 60 days. The same for 2021 bottom line has moved 10.7% north over the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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