Why Select Medical Shares Perked Up

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of hospital and outpatient rehabilitation clinic operator Select Medical Holdings (NYSE: SEM  ) jumped as much as 26% in early trading after the company reported robust second-quarter earnings results.

So what: For the quarter, Select Medical reported a 7.4% increase in revenue to $750.2 million with net income almost quadrupling from a year ago due to a debt retirement loss taken in 2011. In total, Select Medical's $0.31 profit topped Wall Street's predictions by $0.07, while sales came in $20.6 million higher than estimates. The company witnessed sustained growth both from its hospital and outpatient segments of 7% and 8%, respectively. What's more, Select Medical boosted its previous sales and earnings forecast for the full year to a profit of $1.01-$1.06 on revenue of $2.9 billion-$2.975 billion. That's markedly ahead of the current estimates, which called for a profit of $0.93 on sales of $2.94 billion.

Now what: As a hospital operator, nothing could be more robust for Select Medical's future growth than the upholding of the constitutionality of the Patient Protection and Affordable Care Act. With doubtful payments slowly working their way off the balance sheet with the mandate of carrying personal insurance by 2014, Select Medical's future looks bright, and it's reflected in its bottom-line results. The next step toward righting the ship is dealing with the $1.3 billion in long-term debt the company holds on its balance sheet. Recently, ratings agencies have taken a decidedly negative stance on Select Medical's debt ratings, and that is enough of a deterrent to keep me firmly planted on the sidelines despite today's strong earnings beat.

Craving more input? Start by adding Select Medical Holdings to your free and personalized Watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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