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SEM Plunges 48.2% in 6 Months: Should You Buy, Hold or Sell the Stock?
SEMSelect Medical(SEM) ZACKS·2025-01-03 17:26

Core Viewpoint - Select Medical Holdings Corporation (SEM) has experienced a significant decline in stock performance, dropping 48.2% over the past six months, which is substantially worse than the industry average decline of 1.9% [1][2] Financial Performance - SEM's stock is currently down 14.9% from its 52-week high of 22.08andistradingbelowits50−daymovingaverage,indicatingpotentialdownwardmomentum[2]−Thecompany′sprofitabilityhasbeennegativelyimpactedbyrisingcosts,whichincreasedby11.522.08 and is trading below its 50-day moving average, indicating potential downward momentum [2] - The company's profitability has been negatively impacted by rising costs, which increased by 11.5%, 5.8%, and 2.5% in 2021, 2022, and 2023, respectively, with an additional 5.6% rise in the first nine months of 2024 [5] - Overall costs are projected to increase by more than 5% year-over-year for the full year, putting pressure on profit margins [5] Growth Strategy - SEM is pursuing growth through acquisitions to enhance volumes, but its return on invested capital stands at 6.2%, below the industry average of 10.4%, indicating less effective capital utilization [6] - The company faces significant leverage, with a net debt-to-capital ratio of 55.2%, compared to the industry average of 20.6% [7] - As of September 30, 2024, SEM reported 3.1 billion in long-term debt and only $191.5 million in cash and cash equivalents [7] Strategic Initiatives - SEM completed the spin-off of Concentra in November 2024, which aims to streamline operations and focus on core business areas such as critical illness recovery hospitals and rehabilitation clinics [9] Valuation Metrics - The stock is currently trading at 9.57X forward 12-month earnings, below its five-year median of 12.90X and the industry average of 14.34X, suggesting it may be undervalued [10] - Peers like Centene and Cigna are valued at 8.88X and 9.62X forward 12-month earnings, respectively [12] Earnings Outlook - The Zacks Consensus Estimate for SEM's current-quarter adjusted earnings is 15 cents per share, reflecting a 58.3% year-over-year decline, with further declines of 46.8% expected for the next quarter [13] Conclusion - Rising costs and significant leverage are straining SEM's financial health, and despite strategic moves like the Concentra spin-off, downward earnings revisions and underperformance compared to peers indicate ongoing struggles [14]