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On Monday, Benchmark analysts lowered the price target on Select Medical (TASE:BLWV) Holdings (NYSE:SEM) shares to $21 from the previous $23, while maintaining a Buy rating on the company. The adjustment follows a significant 22% drop in the company’s stock on Friday, triggered by a downward revision in its fiscal year 2025 adjusted EBITDA (AEBITDA) forecast. The stock, currently trading at $14.96 with a market cap of $1.94 billion, is now trading significantly below InvestingPro’s Fair Value estimate, suggesting potential upside opportunity.
The revised guidance, which now anticipates a 2% decrease in FY25 AEBITDA, was primarily a reaction to the company’s first-quarter performance. Despite this adjustment, the company maintains strong fundamentals with 16.4% revenue growth in the last twelve months and an EBITDA of $386.2 million. The shortfall was attributed to its Critical Illness Recovery Hospitals (LTACH) segment, which faced reimbursement penalties during its seasonally strongest quarter, characterized by the highest acuity cases.
Despite the initial setback, Benchmark analysts expect a brighter outlook for the remainder of the year. They predict that the company’s Rehabilitation Hospitals (IRF) segment will experience stronger performance, which should help to mitigate the challenges faced by the LTACH segment. The updated guidance suggests an approximate 7% growth in AEBITDA for the next three quarters.
Benchmark’s commentary emphasized that Friday’s market reaction was disproportionate to the company’s revised forecasts. The analysts believe that the sharp decline in Select Medical’s stock price did not align with the company’s financial outlook, suggesting that the market may have overreacted to the updated guidance.
In other recent news, Select Medical Holdings Corporation reported its first-quarter earnings for 2025, surpassing analyst expectations with an earnings per share (EPS) of $0.75, significantly higher than the forecasted $0.37. However, the company’s revenue fell short of expectations, recording $1.35 billion against a forecast of $1.39 billion. Despite the earnings beat, the stock price experienced a decline following the announcement, reflecting investor concerns over the revenue miss. The company’s inpatient rehabilitation division showed strong growth, with a 16% increase in revenue, although the critical illness recovery hospitals segment faced a 3% revenue decrease. Mizuho (NYSE:MFG) Securities maintained an Outperform rating on Select Medical but reduced the stock’s price target from $25 to $21, citing temporary challenges due to an unusually severe flu season. Mizuho analysts expressed optimism about the company’s ability to navigate these challenges, highlighting the strength in its inpatient rehabilitation segment. Select Medical also revised its 2025 guidance, projecting revenue between $5.3 billion and $5.5 billion and adjusted EPS between $1.09 and $1.19. The company plans to continue expanding its inpatient rehabilitation facilities, with several new units expected to open by 2027.
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