Shareholders of Select Medical Holdings Corporation (NYSE:SEM) will be pleased this week, given that the stock price is up 11% to US$28.21 following its latest annual results. It was a credible result overall, with revenues of US$5.5b and statutory earnings per share of US$1.10 both in line with analyst estimates, showing that Select Medical Holdings is executing in line with expectations. This is an important time for investors, as they can track a company’s performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. We thought readers would find it interesting to see analysts’ latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the most recent consensus for Select Medical Holdings from seven analysts is for revenues of US$5.65b in 2020, which is a reasonable 3.5% increase on its sales over the past 12 months. Statutory earnings per share are expected to shoot up 25% to US$1.38. Before this earnings report, analysts had been forecasting revenues of US$5.64b and earnings per share (EPS) of US$1.38 in 2020. So it’s pretty clear that, although analysts have updated their estimates, there’s been no major change in expectations for the business following the latest results.
The consensus price target rose 9.6% to US$28.63 despite there being no meaningful change to earnings estimates. It could be that analysts are reflecting the predictability of Select Medical Holdings’s earnings by assigning a price premium. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Select Medical Holdings analyst has a price target of US$33.00 per share, while the most pessimistic values it at US$22.00. This shows there is still quite a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It’s pretty clear that analysts expect Select Medical Holdings’s revenue growth will slow down substantially, with revenues next year expected to grow 3.5%, compared to a historical growth rate of 11% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 6.7% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Select Medical Holdings to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that there’s been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that Select Medical Holdings’s revenues are expected to perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Select Medical Holdings going out to 2021, and you can see them free on our platform here..
It might also be worth considering whether Select Medical Holdings’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.