Back to top

Image: Bigstock

Select Medical's (SEM) Rising Stake in Concentra to Aid

Read MoreHide Full Article

Select Medical Holdings Corporation (SEM - Free Report) recently announced that it has bumped up ownership in Concentra Group Holdings to 100%. The move will likely allow the company to focus more on its profitable assets.

Select Medical formed a joint venture with a private equity firm to acquire Concentra from Humana Inc. (HUM - Free Report) in 2015 for $1,055 million in cash. Now, SEM, through its wholly-owned operating subsidiary Select Medical Corporation, bought around 20.2% outstanding voting membership interests of Concentra from the private equity firm and other equity holders for $625.6 million.

Per the latest regulatory filing, Select Medical now holds 100% voting membership stake in Concentra. Also, SEM bought some non-voting membership interests in the acquired company from its managers. As a result, Select Medical currently has around 99.3% of the outstanding membership stake of Concentra (on a fully-diluted basis).

Deal Rationale

Concentra provides occupational medicine, physical therapy, urgent care, and other wellness services from 520 medical centers located all over the country. It also operates more than 130 onsite medical units. The company provides a wide range of health advisory services to employers.

Concentra provided 35% of net operating revenues in 2020 for SEM. Operating revenues of $442.2 million for third-quarter 2021 improved 12.8% year over year, attributable to a 14% rise in patient visits. With the latest acquisition, SEM’s top line will likely see an uptick in the coming days.

Also, with a decline in the unemployment rate, Concentra’s health advisory services to employers are expected to see major growth. As such, Select Medical’s decision to boost ownership in Concentra comes at an opportune time. It can improve the company’s cash flows from operations. Net cash provided by operating activities in the third quarter totaled only $99 million, which slipped 26.4% year over year.

Nonetheless, Select Medical’s weak balance sheet might take a hit due to the transaction. At third quarter-end, it had cash and cash equivalents of only $748 million while long-term debt, net of current portion, amounted to $3.4 billion.

Price Performance

Select Medical’s shares have increased 5.2% in the past year compared with 39.4% rally of the industry.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank and Key Picks

Select Medical currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical space include Co-Diagnostics, Inc. (CODX - Free Report) and Harrow Health, Inc. (HROW - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Salt Lake City, UT-based Co-Diagnostics provides a wide range of testing services to customers. Its joint venture CoSara in India is likely to have boosted its addressable market size. Also, Co-Diagnostics’ Logix Smart™ ABC test received a green signal from the Mexican watchdogs. Deals like these will keep strengthening its client base around the world.

The molecular diagnostics company’s bottom line for 2021 has witnessed one upward estimate revision in the past 60 days and no movement in the opposite direction. During this time period, Co-Diagnostics’ earnings estimates have risen 17.9%. CODX beat earnings estimates thrice in the last four quarters and missed once, with the average surprise being 35.6%.

Based in San Diego, CA, Harrow Health is an ophthalmic-focused healthcare firm. Its recent acquisitions of ophthalmic surgical drug candidates from Sintetica and Wakamoto Pharmaceutical are major positives. Moves like these are likely to bolster Harrow Health’s commercial success in the U.S. and Canadian markets.

Harrow Health’s bottom line for 2021 is expected to soar 346.2% year over year. It has witnessed one upward estimate revision in the past 60 days and no movement in the opposite direction. HROW beat earnings estimates thrice in the last four quarters and missed once, with the average surprise being 38%.