Down 33.4% YTD, Can Select Medical Stitch Back its Growth Story?

Select Medical Holdings Corporation SEM has had a brutal run so far in 2025. Shares have plunged 33.4% year to date, sharply lagging the industry’s 29.7% gain and the S&P 500’s 14.2% growth. Currently trading at $12.55, the stock sits at a steep 69.4% below its 52-week high of $40.98.

With such underperformance, the big question is: should investors hang on, or is it time to move on from SEM?

SEM’s YTD Price Performance

What’s Hurting SEM?

The Critical Illness Recovery Hospital unit has been a weak spot. Admissions slipped 1% in 2023, 1.2% in 2024 and 0.5% in the first half of 2025. Patient days and revenue per patient day also trended lower in the first two quarters, pushing operating income down 28% year over year.

Rising costs are another concern. Expenses climbed 7.9% in 2024 and 3.4% in the first half of 2025, and the momentum has no signs of slowing. On top of that, uncertainty around future government medical aid adds further pressure.

Returns remain underwhelming. SEM’s trailing 12-month return on equity stands at 8.9%, well below the industry’s average of 21.1%, underscoring weak capital efficiency.

Debt is also weighing on growth. The company’s net debt-to-capital ratio is an elevated 47.2%. As of June 30, 2025, long-term debt stood at $1.8 billion, against just $52.3 million in cash.

What Does Zacks Estimates Say for SEM?

The Zacks Consensus Estimate projects 2025 revenues at $5.37 billion, down 18.9% year over year, followed by a 4.9% recovery in 2026. EPS is expected at $1.17 in 2025, up 24.5%, with an additional 14.3% increase in 2026. The estimates have held steady over the past week. Earnings surprises have been inconsistent, two beats and two misses in the last four quarters, with an average surprise of 11.4%.

Select Medical Holdings Corporation Price, Consensus and EPS Surprise

Select Medical Holdings Corporation price-consensus-eps-surprise-chart | Select Medical Holdings Corporation Quote

Bright Spots for SEM

Not all is bleak. The Rehabilitation Hospital segment continues to deliver, with occupancy at 82% in the first half of 2025. Admissions and patient days rose 8.1% and 6.4%, respectively, while operating income jumped 12.1% in 2024 and 16.1% in the first half of 2025. Margins have held above 20% this year.

Cash generation also looks solid. Operating cash flow came in at $517.9 million in 2024 and $106.8 million in the first half of 2025. With additional capacity planned, 412 more beds scheduled between 2025 and mid-2027, management has room to boost growth. The company already returned $96.5 million to shareholders through buybacks in the first half of 2025.

Valuation offers another cushion. SEM trades at a forward P/E of 9.69X, below its five-year median of 12.75X and the industry average of 13.55X, leaving scope for a rebound as fundamentals stabilize. Select Medical now has a Value Score of A.

Conclusion

Select Medical is grappling with serious headwinds, soft performance in its Critical Illness Recovery Hospitals, rising costs, heavy leverage and weaker returns than peers. However, its Rehabilitation Hospital segment remains a bright spot, supported by healthy occupancy, rising patient volumes, and solid cash generation. The company’s undervalued trading multiples also leave room for upside if execution improves. Given the mixed picture, SEM appears fairly balanced between risks and opportunities at this stage. Accordingly, the stock carries a Zacks Rank #3 (Hold), suggesting that investors may consider maintaining their current positions.

Better-Ranked Players

Investors can look at some better-ranked stocks in the broader Medical space, like Pediatrix Medical Group, Inc. MD and The Ensign Group, Inc. ENSG. While Pediatrix Medical currently sports a Zacks Rank #1 (Strong Buy), Ensign carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Pediatrix Medical’s 2025 bottom line suggests 17.9% year-over-year growth. It witnessed five upward estimate revisions over the past 60 days against no movement in the opposite direction. MD beat earnings estimates in each of the last four quarters, with the average surprise being 28.7%.

The Zacks Consensus Estimate for Ensign’s 2025 bottom line is pegged at $6.39 per share, which indicates 16.2% growth from a year ago. During the past 60 days, ENSG witnessed two upward estimate revisions against none in the opposite direction. It beat earnings estimates in each of the last four quarters, with the average surprise being 1.9%.

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This article originally published on Zacks Investment Research (zacks.com).

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