Select Medical (SEM) Rises 42.4% YTD: More Growth Ahead?

Core Viewpoint - The increase in patient days and admissions in the Critical Illness Recovery Hospital and Rehabilitation Hospital segments is expected to enhance investor confidence, leading to a recommendation for investors to maintain their current stock positions [1]. Group 1: Company Performance - Select Medical Holdings Corporation (SEM) has shown strong performance, with a year-to-date stock return of 42.4%, significantly outperforming the industry decline of 5.8% and the S&P 500 Index growth of 12.4% [7]. - The Zacks Consensus Estimate for SEM's 2024 earnings indicates a 5.5% year-over-year increase to $2.10 per share, with a projected 12.5% growth for 2025 [8]. - Revenue per visit is expected to rise, contributing to an anticipated 4.1% year-over-year growth in SEM's 2024 top line, reaching over $6.9 billion [16]. Group 2: Market Trends - The strategic expansion of facilities is allowing SEM to capture a larger market share, with expected growth in patient admissions of 1.5% and 3.3% year-over-year for its Critical Illness Recovery and Rehabilitation Hospital segments, respectively [2]. - The Outpatient Rehabilitation and Concentra units are projected to see nearly 2% and 1% growth in the number of visits from the previous year [2]. Group 3: Financial Health - SEM's long-term debt-to-capital ratio stands at 69.8%, significantly higher than the industry average of 38.4%, indicating potential financial leverage concerns [4]. - The company exited the first quarter with cash and cash equivalents of $92.6 million, while long-term debt increased to $3.8 billion from $3.6 billion at the end of 2023 [4]. Group 4: Analyst Sentiment - Analysts have shown confidence in SEM, with one upward estimate revision for the 2024 bottom line in the past 30 days, resulting in a 2.9% increase in the Zacks Consensus Estimate for 2024 earnings [15]. - The company has beaten earnings estimates three times in the past four quarters, with an average surprise of 19.3% [8].