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Here's Why Hold Strategy is Apt for Select Medical Stock
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Select Medical Holdings Corporation (SEM - Free Report) is well-poised to gain from diversified product portfolio and buyouts, which have been contributing to the top line.
It has a trailing four-quarter positive earnings surprise of 27.85%, on average. The company’s expected long-term earnings growth rate is 15%, better than the industry’s average of 13.6%.
Factors Driving Performance
Select Medical continues to benefit on the back of improved revenues, which have witnessed a CAGR of 12.2% in the past five years (2014-2019). Being a high-quality and cost-effective healthcare provider, the company continues to attract more patients and employees. It is also likely to help in marketing efforts to referral sources and negotiating payer contracts.
This momentum continued in first-quarter 2020 with the top line improving 6.8% year over year primarily owing to higher contribution from its business segments—Critical Illness Recovery Hospital, Rehabilitation Hospital and Outpatient Rehabilitation.
On one hand, the Critical Illness Recovery Hospital and Rehabilitation Hospital segments have been driven by growth in patient volumes and patient days in first-quarter 2020. On the other hand, the Outpatient Rehabilitation and the Concentra segments have been impacted by the suspension of elective surgeries on account of the COVID-19 pandemic. Nevertheless, the company’s geographically diversified portfolio of facilities in the United States and intensified focus on quality care services are expected to drive Concentra segment further.
Moreover, Select Medical has undertaken a number of strategic initiatives in the past two decades. These initiatives, generally in the form of buyouts and collaborations, have enhanced the company’s suite of products and services.Some of the most notable buyouts undertaken till 2018 include Physiotherapy, Concentra and U.S. Health Works.
The company is well on track to take advantage of consolidation opportunities within each of its business segments. All these efforts have led to the company’s inorganic growth, which in turn, has been driving the top line.
Furthermore, the company’s improved liquidity position has led to a strong balance sheet. Select Medical has sufficient cash reserves to meet its current portion of long-term debt. The company’s total debt to total capital of 82.7% as of Mar 31, 2020, remained flat sequentially.
Also, the times interest earned ratio of 2.5 as of Mar 31, 2020, is higher than the prior-quarter figure of 2.3, which implies that the company’s earnings are sufficient to cover interest obligations. Sound liquidity position has, in turn, generated sufficient cash flows for the company, where net cash provided by operating activities improved 5.6% year over year in first-quarter 2020.
However, shares of this Zacks Rank #3 (Hold) healthcare provider have lost 7.3% in a year against the industry’s growth of 11.5%.
Due to the financial uncertainty related to the COVID-19 pandemic, Select Medical has repealed 2020 guidance this April. Nevertheless, we believe that the company’s strong fundamentals are likely to help it tide over the current challenging operating environment.
Brookdale, Axcella Health and Abeona Therapeutics have a trailing four-quarter positive earnings surprise of 2.33%, 5.60% and 5.45%, on average, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Here's Why Hold Strategy is Apt for Select Medical Stock
Select Medical Holdings Corporation (SEM - Free Report) is well-poised to gain from diversified product portfolio and buyouts, which have been contributing to the top line.
It has a trailing four-quarter positive earnings surprise of 27.85%, on average. The company’s expected long-term earnings growth rate is 15%, better than the industry’s average of 13.6%.
Factors Driving Performance
Select Medical continues to benefit on the back of improved revenues, which have witnessed a CAGR of 12.2% in the past five years (2014-2019). Being a high-quality and cost-effective healthcare provider, the company continues to attract more patients and employees. It is also likely to help in marketing efforts to referral sources and negotiating payer contracts.
This momentum continued in first-quarter 2020 with the top line improving 6.8% year over year primarily owing to higher contribution from its business segments—Critical Illness Recovery Hospital, Rehabilitation Hospital and Outpatient Rehabilitation.
On one hand, the Critical Illness Recovery Hospital and Rehabilitation Hospital segments have been driven by growth in patient volumes and patient days in first-quarter 2020. On the other hand, the Outpatient Rehabilitation and the Concentra segments have been impacted by the suspension of elective surgeries on account of the COVID-19 pandemic. Nevertheless, the company’s geographically diversified portfolio of facilities in the United States and intensified focus on quality care services are expected to drive Concentra segment further.
Moreover, Select Medical has undertaken a number of strategic initiatives in the past two decades. These initiatives, generally in the form of buyouts and collaborations, have enhanced the company’s suite of products and services.Some of the most notable buyouts undertaken till 2018 include Physiotherapy, Concentra and U.S. Health Works.
The company is well on track to take advantage of consolidation opportunities within each of its business segments. All these efforts have led to the company’s inorganic growth, which in turn, has been driving the top line.
Furthermore, the company’s improved liquidity position has led to a strong balance sheet. Select Medical has sufficient cash reserves to meet its current portion of long-term debt. The company’s total debt to total capital of 82.7% as of Mar 31, 2020, remained flat sequentially.
Also, the times interest earned ratio of 2.5 as of Mar 31, 2020, is higher than the prior-quarter figure of 2.3, which implies that the company’s earnings are sufficient to cover interest obligations. Sound liquidity position has, in turn, generated sufficient cash flows for the company, where net cash provided by operating activities improved 5.6% year over year in first-quarter 2020.
However, shares of this Zacks Rank #3 (Hold) healthcare provider have lost 7.3% in a year against the industry’s growth of 11.5%.
Due to the financial uncertainty related to the COVID-19 pandemic, Select Medical has repealed 2020 guidance this April. Nevertheless, we believe that the company’s strong fundamentals are likely to help it tide over the current challenging operating environment.
Stocks to Consider
Some better-ranked stocks in the medical space include Brookdale Senior Living Inc. (BKD - Free Report) , Axcella Health Inc. and Abeona Therapeutics Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Brookdale, Axcella Health and Abeona Therapeutics have a trailing four-quarter positive earnings surprise of 2.33%, 5.60% and 5.45%, on average, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>