Why Select Medical's Shares Reversed Course

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What: Do you ever experience deja vu? I almost feel like we've done this before -- maybe 24 hours ago? Just one day after reporting better-than-expected second-quarter results and jumping more than 25% at one point, hospital and outpatient rehabilitation clinic operator Select Medical Holdings (NYSE: SEM  ) is diving as much as 23% after receiving multiple analyst downgrades.

So what: Count them out: Not one, two, or three, but four separate Wall Street downgrades today have Select Medical spiraling downward. Bank of America Merrill Lynch, UBS, Baird Equity, and RBC Capital Markets all lowered their ratings on Select Medical, citing little upside in the stock after yesterday's move. In particular, the covering analyst at Merrill Lynch noted the potential for rising costs in the face of uncertain reimbursements for long-term Medicare-dependent providers over the coming months.

Now what: What I said yesterday, I will repeat today: I love staying on the sidelines! Personally, I saw less risk for analyst downgrades than for credit rating downgrades from the top ratings agencies. Either way, things aren't going to be a cakewalk for Select Medical. I feel its future still remains bright, given the enacting of Obamacare in 2014, which will secure much of its revenue stream, but it could face multiple headwinds leading up to that date.

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

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Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other 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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