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Select Medical (SEM) Banks on Top-Line Growth, Solid Cash Flows

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Select Medical Holdings Corporation (SEM - Free Report) has been gaining momentum on the back of improving revenues, well-performing segments and robust cash flow from operations. Solid 2021 guidance also reinforces growth prospects of the stock.

Let’s take a look into the factors acting as tailwinds for Select Medical.

Impressive Earnings Surprise History: Select Medical boasts an impressive earnings surprise record. It has surpassed estimates in each of the trailing four quarters, the average surprise being 245.91%.

Strong 2021 Guidance: Concurrent with first-quarter 2021 results, Select Medical has revised its 2021 business outlook for the following metrics.  Revenues are now anticipated in the range of $5.7 billion to $5.9 billion, higher than the prior guidance of $5.65-$5.85 billion. The mid-point of the newly provided guidance suggests 5.5% growth from the 2020 reported figure.

Earnings per common share is forecast within $2.41-$2.58, up from the previous guidance of $2.26-$2.48. The mid-point of the revised guidance reflects 29.3% rise from the prior-year reported figure.

Growing Revenues: Revenues at Select Medical have exhibited a 10-year CAGR of 7%. The upward trend continued in the first-quarter 2021, wherein the top line witnessed 9.3% growth year over year. This time, well-performing Critical Illness Recovery Hospital and Rehabilitation Hospital segments contributed to the upside.  Both the segments benefited from higher number of admissions and hence, greater occupancy rates on a year-over-year basis.

The company has also pursued several buyouts in the past, which in turn, has enhanced its capabilities and extended nationwide presence. All these factors cumulatively have been driving the company’s revenues for quite a long time.

Robust Financial Standing: Select Medical boasts of a solid cash balance. It exited the first quarter with cash and cash equivalents worth $750.3 million, which increased 30% from the 2020-end level. Also, the company has been generating solid cash flows from operations. Utilizing these cash flows, the company has been able to undertake growth-related initiatives and return value to shareholders.

During the first quarter, net cash provided by operating activities of $239.9 million increased to more than five-fold year over year. Further, its leverage ratio has been improving as indicated by the total debt/total capital of 71.6% at first-quarter end. The figure remained lower than 2020-end figure of 73.1%. Its times interest earned ratio of 4.9x compares favorably with the prior-year figure of 4%, reflecting the company’s ability to make interest payments.

Consistently Increasing ROE: The company has generated a consistent increase in return on equity (ROE) since 2016. This implies that Select Medical has been prudent in utilizing its shareholders’ funds. As of Mar 31, 2021, the company’s trailing 12-month ROE of 25.2% remained higher than the 2020-end figure of 22%.

Q1 Medical Sector Releases

Of the medical sector players that reported first-quarter results so far, the bottom line of Humana Inc. (HUM - Free Report) , Tenet Healthcare Corporation (THC - Free Report) and Anthem, Inc. beat the Zacks Consensus Estimate.

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