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Why Select Medical Shares Popped

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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 Select Medical Holdings (NYSE: SEM  ) , a hospital and outpatient rehabilitation clinic operator, jumped as much as 12% following the release of its fourth-quarter earnings results.

So what: For the quarter, Select Medical reported a 3.2% increase in net revenue to $741.1 million and a profit of $0.28 compared to $0.25 in the year-ago period. While revenue was essentially in line with estimates at $741 million, Wall Street had only expected $0.25 in EPS. The company's hospital segment provided the biggest boost, with revenue rising 4.1%,  compared to just 0.5% for its rehabilitation segment. It's worth noting, though, that Select Medical's rehabilitation clinics were negatively affected by Hurricane Sandy, so the negative impact on revenue and EBITDA wasn't entirely within the company's control. Select Medical's 2013 guidance fell perfectly in line with the Street's estimates, at $2.95 billion to $3.05 billion in net revenue and $0.98-$1.04 in EPS.

Now what: As I've been saying all along with Select Medical, the implementation of the Affordable Care Act is going to be a big positive for its bad debt expense exposure, but it'll also need to work on lowering its net debt, which is still pretty close to $1.4 billion. In terms of value, Select Medical could be worth a flier at 9.5 times this year's earnings for those seeking a deeply discounted company and willing to dig a bit deeper. Just remember to keep a close eye on its cash flow and debt levels!

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.

While you can certainly make huge gains in hospital operators like Select Medical, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Related Tickers

9/30/2016 4:05 PM
SEM $13.50 Up +0.29 +2.20%
Select Medical Hol… CAPS Rating: *****