Monday, Benchmark upgraded its price target for Select Medical Holdings (NYSE:SEM) shares to $42.00, up from the previous $39.00, while maintaining a Buy rating.
The increase follows a robust first-quarter performance that surpassed expectations, along with a cautious yet improved forecast for the full year 2024's adjusted EBITDA and earnings per share (EPS).
Select Medical's Critical Illness Recovery hospitals experienced a significant 51% growth in segment EBITDA, driven by a higher case mix index and a 6% decrease in salaries, wages, and benefits (SWB). This strong performance helped alleviate concerns about the impact of Medicare's substantial rise in the fixed loss threshold for high-cost outlier cases.
The company's Rehabilitation Hospitals (IRF) also contributed positively, showing a 30% growth in adjusted EBITDA. In light of these results, Select Medical has adjusted its guidance for total adjusted EBITDA and EPS, tightening and modestly raising the ranges.
The revised fiscal year 2024 model by Benchmark incorporates part of the first-quarter beat and adds further conservatism for the remainder of the year. The new price target of $42 largely reflects the heightened outlook and anticipation of the Concentra spin-off planned for later in the year. Benchmark suggests that the sum-of-the-parts valuation for Select Medical could exceed $50, factoring in the potential valuation ranges for Concentra.
InvestingPro Insights
InvestingPro data indicates that Select Medical Holdings (NYSE:SEM) is currently trading at a P/E ratio of 14.92, with a slight adjustment in the last twelve months as of Q1 2024 to 15.21. This valuation comes as the company's revenue growth shows a healthy increase of 6.08% in the same period, and an even more impressive quarterly revenue growth of 7.44% for Q1 2024. Furthermore, Select Medical's commitment to profitability is reflected in their robust gross profit margin of 20.13% and an EBITDA growth of 27.38% over the last twelve months.
InvestingPro Tips suggest that while the stock is trading near its 52-week high, with a price at 93.85% of the peak, it's also showing a significant return over the last week with a 12.29% increase. This is coupled with a strong return over the last three months of 20.33%. Analysts have noted that the company is expected to be profitable this year, and it has already shown profitability over the last twelve months. With these factors in mind, investors may find Select Medical's current position attractive, especially considering the company's solid financial performance and the upcoming Concentra spin-off.
For more detailed analysis and additional InvestingPro Tips, such as the stock's RSI indicating it may be in overbought territory and its low P/E ratio relative to near-term earnings growth, visit https://www.investing.com/pro/SEM. There are 9 additional tips available on InvestingPro, offering deeper insights for those considering an investment in Select Medical Holdings. To access these insights, consider subscribing to InvestingPro and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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