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On Monday, RBC Capital Markets adjusted its outlook on Select Medical (TASE:BLWV) Holdings Corporation (NYSE:SEM), reducing the price target to $23.00 from the previous $47.00. The stock currently trades at $18.48, having declined over 6% year-to-date. Despite the significant cut in the price target, the firm maintained its Outperform rating on the healthcare company’s stock. According to InvestingPro data, analyst targets for the stock range from $19 to $47, suggesting potential upside from current levels.
Select Medical’s stock experienced a downturn last Friday, which RBC Capital’s analyst Ben Hendrix deemed excessive. Hendrix highlighted the company’s resilient Long-Term Acute Care (LTAC) margin and a strong pipeline in its Inpatient Rehabilitation Facilities (IRF). While InvestingPro data shows the company currently faces weak gross profit margins of 8.71%, analysts expect net income growth this year, with EPS forecasts of $1.17 for FY2025. He noted that the company’s performance in these segments was solid compared to the spin-adjusted consensus, and the growth prospects in the IRF segment were particularly promising.
The fourth quarter results showed margin expansion in the LTAC segment, which Hendrix believes should reassure investors that the company has effectively managed the latest round of reimbursement cuts from the Centers for Medicare & Medicaid Services (CMS). Although the 2025 guidance indicates some margin compression, mainly due to IRF startup losses, RBC Capital anticipates double-digit earnings growth in this segment next year. This optimism is supported by an expected increase of approximately 30% in bed capacity over the next 18 months.
The revised price target of $23 takes into account the recent spin-off of Concentra, as mentioned by the analyst. Despite the lowered price target, RBC Capital’s reiteration of the Outperform rating suggests confidence in Select Medical’s ability to navigate the current challenges and capitalize on its growth opportunities.
In other recent news, Select Medical Holdings Corporation reported its fourth-quarter and full-year 2024 earnings, revealing a notable earnings per share (EPS) beat. The company’s EPS for the quarter was $0.18, surpassing the forecasted $0.16. However, revenue for the same period was $1.31 billion, falling short of the anticipated $1.55 billion. Despite the positive EPS result, the revenue miss overshadowed the earnings surprise, contributing to a negative market reaction. Additionally, Select Medical announced a 14% growth in adjusted EBITDA for 2024. The company also completed significant operational changes, including a spin-off and debt refinancing. Looking forward, Select Medical provided a revenue outlook for 2025 between $5.4 billion and $5.6 billion, with adjusted EBITDA expected to range from $520 million to $540 million. The company plans significant capital expenditures and aims to maintain leverage between 3.0x and 3.1x, with a decrease anticipated in 2026.
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