Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Select Medical Holdings Corporation (SEM): Should Investors Buy This Specialty Hospital Operator Now?

Page 1 of 2

Since the beginning of the year, Select Medical Holdings Corporation (NYSE:SEM) has been declining, from $9.90 per share to only $7.85 per share. To take advantage of the falling price, many famous investors, including Joel Greenblatt, Wilbur Ross, Chuck Royce, and Steven Cohen, have accumulated Select Medical for their own portfolios. Should others follow these successful investors into Select Medical?

Select Medical Holdings Corporation (NYSE:SEM)

Consistent growth in revenue and earnings

Select Medical Holdings Corporation (NYSE:SEM) is considered one of the biggest specialty hospital and outpatient rehabilitation clinic operators in the U.S., operating in two main business segments: Specialty Hospitals and Outpatient Rehabilitation. The company currently operates around 122 specialty hospitals and 979 facilities in many states in the U.S. and the District of Columbia. Most of its revenue, $2.2 billion, or nearly 74.6% of the total revenue, was generated from the Specialty Hospitals segment, while the Outpatient Rehabilitation segment contributed only $751.3 million to 2012 revenue. The Specialty Hospitals segment is also the bigger EBITDA generator, with more than $381.3 billion in adjusted EBITDA, whereas the adjusted EBITDA of the Outpatient Rehabilitation came in at $87 million.

In the past five years, Select Medical Holdings Corporation (NYSE:SEM) has experienced consistent growth in both top-line and bottom-line. Revenue increased from $2.15 billion in 2008 to nearly $2.95 billion in 2012. The net income, after preferred dividends, rose from $3 million, or $0.01 per share, to $148 million, or $1.05 per share, during the same period. What I don’t like about Select Medical Holdings Corporation (NYSE:SEM) is its high leverage. As of March 2013, it had $743 million in equity, only $5 million in cash, and as much as $1.5 billion in both long and short-term debt. The company is trading at $7.85 per share, with the total market cap of around $1.1 billion. The market values Select Medical at 6.65 times its trailing EBITDA.

How about HealthSouth and Kindred Healthcare?

Compared to its peers, including HEALTHSOUTH Corp. (NYSE:HLS) and Kindred Healthcare, Inc. (NYSE:KND), Select Medical Holdings Corporation (NYSE:SEM)’s valuation is in between. HealthSouth has the highest valuation among the three. It is trading at $29.20 per share, with the total market cap of $2.55 billion. The market values HealthSouth at 7.47 times its trailing EBITDA. HealthSouth operates around 102 inpatient rehabilitation hospitals and 22 outpatient rehabilitation satellite clinics, generating around $2.2 billion in revenue and having 849,410 outpatient visits in the past four quarters. The company reported that it has around 9% of the total inpatient rehabilitation hospitals in the U.S., with a 21 % market share in terms of total patients served. In 2012, the company had repurchased $46 million of convertible perpetual preferred stock, strengthening the company’s balance sheet position. In the period of 2013-2015, HEALTHSOUTH Corp. (NYSE:HLS) expects to growth its adjusted EBITDA at around 4%-8% compounded annual growth rate and as high as 10%-14% growth in adjusted free cash flow.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!