On May 22, 2015, shares of Select Medical Holdings Corporation SEM hit a 52-week high of $16.85, driven by solid first-quarter results and a proposed acquisition. About 0.9 million shares exchanged hands in the last trading session, and the stock finally closed at $16.60, gaining 1.2%. Year to date, the stock has returned 15.27%, which is much above 3.25% added by the S&P.
Select Medical delivered operating earnings of 27 cents per share in the first quarter, outperforming the Zacks Consensus Estimate by 12.5% and improving 8% year over year. The outperformance came on the back of a 4.3% improvement in revenues. Both Specialty Hospital and Outpatient Rehabilitation segments contributed to top-line growth.
A solid capital position has supported capital deployment via share repurchases which in turn lowers the share count and increases shareholders’ return. The board of directors approved a new share buyback program wherein Select Medical is authorized to repurchase $500 million share through Dec 2016. Select Medical has returned $301.1 million via buyback since the inception of the repurchase program.
Select Medical remains decently liquid, with cash inflows generated in the first quarter against an outflow in the year-ago quarter. Cash position also improved by a significant 96% from the 2014-end level to $6.9 million at first-quarter end.
Riding on better-than-expected performance, the company still expects to deliver earnings of 84-90 cents per share on revenues of $3.1 billion to $3.2 billion. Adjusted EBITDA for 2015 is still expected between $370 million and $385 million.
With respect to its performance, this Zacks Rank #3 (Hold) health maintenance organization has delivered positive earnings surprises in two of the last four quarters, with an average beat of 3.55%.
Moreover, the company’s acquisition of Concentra Inc. by MJ Acquisition Corporation – a joint venture between Select and Welsh, Carson, Anderson & Stowe XII, L.P. – is on track. Concentra with 300 medical centers and 170 onsite clinics in 40 states will enhance Select Medical’s products and services. Recently, the transaction has received the antitrust clearance.
A sturdy first quarter drove the Zacks Consensus Estimate higher as most of the estimates moved north in the last 30 days. It increased 2.3% to 90 cents (as 3 of 5 estimates were revised higher) for 2015. The expected long-term growth rate for the stock is 12.5%.
Stocks to Consider
Some better-ranked health maintenance organizations are Molina Healthcare, Inc. MOH, Aetna Inc. AET and Anthem, Inc. ANTM. While Molina Healthcare sports Zacks Rank #1 (strong Buy), Aetna and Anthem carry a Zacks Rank #2 (Buy).
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