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Select Medical (SEM) Shares Dip on Q2 Earnings & Revenue Miss

Shares of Select Medical Holdings Corporation SEM have declined 1.4% since it reported second-quarter 2022 results on Aug 4, wherein earnings and revenues lagged the Zacks Consensus Estimate. The quarterly results suffered a blow from an elevated expense level that outpaced growth in revenues, inducing lower income from operations. Soft patient volumes within the Critical Illness Recovery Hospital segment and declining revenues within the Concentra segment also caused the downside.

However, strong contribution to revenues by the Rehabilitation Hospital and Outpatient Rehabilitation segments partly benefited the quarterly results of SEM.

Q2 Update

Select Medical reported second-quarter adjusted earnings of 43 cents per share, which missed the Zacks Consensus Estimate by 15.7%. The bottom line plunged 64.8% year over year.

Net operating revenues of $1,584.7 million inched up 1.3% year over year in the quarter under review. Yet, the top line lagged the consensus mark by 1.7%.

Total costs and expenses rose 7.3% year over year to $1,478.9 million due to a 7.7%, 4.3% and 0.2% rise in cost of services, general and administrative expenses, and depreciation and amortization costs, respectively.

Adjusted EBITDA came in at $181 million, which dropped 47.1% year over year in the second quarter.

Segmental Update

Critical Illness Recovery Hospital

The segment’s operating revenues of $545.9 million inched up 0.3% year over year on the back of a marginal increase of 0.1% in patient days. However, admissions within the segment declined 2.4% year over year. Adjusted EBITDA of $20 million plunged 72.5% year over year.

Rehabilitation Hospital

Operating revenues of $228.9 million improved 7.6% year over year in the segment, courtesy of 3.7% growth in patient days. Adjusted EBITDA declined 1.8% year over year to $49.8 million in the quarter under review.

Outpatient Rehabilitation

The segment reported operating revenues of $287.3 million in the second quarter, up 2.4% year over year. Growth can be attributed to a 1.9% increase in patient visits. Adjusted EBITDA of $33.6 million declined 26.4% year over year.

Concentra

Operating revenues of the segment amounted to $441.4 million, which slipped 3.3% year over year. Yet, patient visits rose 6.1% year over year. Adjusted EBITDA tumbled 32.4% year over year to $92.6 million in the quarter under review.

Financial Position (as of Jun 30, 2022)

Select Medical exited the second quarter with cash and cash equivalents of $94.7 million, which climbed 27.4% from the 2021-end level. Total assets of $7,551.7 million increased 2.6% from the figure at 2021 end.

SEM had $243 million left under its revolving loans at the end of the second quarter.

Long-term debt, net of the current portion, increased 4.7% from the 2021-end level to $3,723.7 million.

Total equity of $1,303.7 million dipped 1.7% from the figure at 2021 end.

Net cash provided by operating activities rose 39.4% year over year to $171.7 million in the second quarter.

Share Repurchase & Dividend Update

Select Medical bought back shares worth $126 million in the second quarter.

On Aug 2, 2022, management sanctioned a cash dividend of 12.5 cents per share. The dividend will be paid out on or about Sep 2, 2022, to its shareholders of record as of Aug 16, 2022.

2022 Business Outlook

Consolidated revenue guidance is reiterated within $6.25-$6.40 billion, the midpoint of which indicates a 2% rise from the 2021 level of $6.2 billion. SEM maintains its three-year (2021-2023) CAGR target for revenues between 4% and 6%.

Capital expenditure view is reaffirmed between $180 million and $200 million in 2022.

When the labor climate stabilizes, Select Medical will analyze its business outlook and set a respective CAGR target for adjusted EBITDA and earnings per common share.

Zacks Rank

Select Medical currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the Medical sector players that have reported second-quarter results so far, the bottom-line results of Humana Inc. HUM, Centene Corporation CNC and Universal Health Services, Inc. UHS beat the Zacks Consensus Estimate.

Humana reported second-quarter 2022 adjusted earnings per share of $8.67, which outpaced the Zacks Consensus Estimate by 13%. The bottom line improved 26% year over year. Revenues of Humana amounted to $23.7 billion, which improved 15% year over year in the second quarter. The top line beat the consensus mark by 1.2%. Total premiums of HUM climbed 11.5% year over year in the quarter under review, while revenues from services increased nearly three-fold year over year.

Centene Corporation’s second-quarter 2022 adjusted earnings per share of $1.77 surpassed the Zacks Consensus Estimate by 2.3%. The bottom line increased from $1.25 per share a year ago. Total revenues of Centene rose 16% year over year to $35,936 million in the second quarter. The top line beat the consensus mark by 1.1%. While CNC’s revenues from Medicaid rose 8% year over year in the second quarter, revenues from Commercial and Medicare jumped 11% and 26%, respectively.

Universal Health reported second-quarter 2022 adjusted earnings of $2.20 per share, which outpaced the Zacks Consensus Estimate by 5.8%. However, the bottom line plunged 41.5% year over year. Net revenues of Universal Health grew 3.9% year over year to $3.3 billion in the second quarter. The top line beat the consensus mark by a whisker. UHS’s total operating costs of $3.1 billion escalated 12% year over year in the quarter under review.


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