Select Medical Holdings Corporation (SEM) unveiled its guidance for 2015. The company expects to deliver earnings between 84 cents and 90 cents per share on net revenues of $3.1 billion to $3.2 billion. Though the current Zacks Consensus Estimate of 97 cents per share of earnings is above the company guidance, it translates into year-over-year growth of 5.15%. The Zacks Consensus Estimate for revenues is within the guided range.
Select Medical estimates adjusted earnings before interest, tax depreciation and amortization (EBITDA) in the range of $370–$385 million for 2015.
Select Medical’s guidance accounted for losses of $17 million from its long-term acute care hospitals (LTCH) and inpatient rehabilitation facilities that recently opened or are underway. The company estimates the effective tax rate at 40% and total shares outstanding of about 131.7 million at 2015 end.
Q4 Projection
In its previous earnings conference call, Select Medical estimated earnings of 19–22 cents per share for the fourth quarter and 90–93 cents per share for 2014. The bottom line is expected to come on revenue generation of about $765–$785 million for the fourth quarter, taking the full-year top-line tally to $3.058 billion to $3.078 billion.
Select Medical is scheduled to announce fourth-quarter earnings on Feb 19. With respect to its earnings trend, the company delivered positive surprises in three of the last four quarters with the highest surprise coming in the last reported quarter. However, our proven model shows that the company will miss earnings this quarter because it has a combination of Zacks Rank #4 (Sell) and a negative Earnings ESP. Zacks Rank #4 lowers the predictive power of an earnings beat. Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, currently stands at -5.00%, further increasing the chance of an earnings miss.
Nonetheless, the Zacks Consensus Estimate for the fourth quarter and full year is pegged at 20 cents and 92 cents, respectively. These translate to a year-over-year decline of 3.57% for the fourth quarter but an improvement of 2.5% for 2014.
Adjusted EBITDA for the fourth quarter is expected between $85.0 million and $90.0 million with full-year numbers estimated between million $370.0 and $375.0 million. The company estimated a $3 million loss from new LTCH in the fourth quarter. The company expects to add 250 additional LTCH beds through the expansion the project to new hospitals. It plans to open one hospital in the second quarter of 2015.
Stocks to Consider
Better-ranked health maintenance organizations worth considering include Centene Corp. (CNC), Anthem, Inc. (ANTM) and UnitedHealth Group Incorporated (UNH). While Centene sports a Zacks Rank #1 (Strong Buy), Anthem and UnitedHealth Group carry a Zacks Rank #2 (Buy).
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