Healthcare services company Select Medical (NYSE:SEM) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 24.4% year on year to $1.35 billion. The company’s full-year revenue guidance of $5.4 billion at the midpoint came in 1.6% below analysts’ estimates. Its GAAP profit of $0.44 per share was 7.3% below analysts’ consensus estimates.
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Select Medical (SEM) Q1 CY2025 Highlights:
- Revenue: $1.35 billion vs analyst estimates of $1.39 billion (24.4% year-on-year decline, 2.6% miss)
- EPS (GAAP): $0.44 vs analyst expectations of $0.47 (7.3% miss)
- Adjusted EBITDA: $151.4 million vs analyst estimates of $166.5 million (11.2% margin, 9.1% miss)
- The company dropped its revenue guidance for the full year to $5.4 billion at the midpoint from $5.5 billion, a 1.8% decrease
- EPS (GAAP) guidance for the full year is $1.14 at the midpoint, beating analyst estimates by 1.8%
- EBITDA guidance for the full year is $520 million at the midpoint, below analyst estimates of $531.3 million
- Operating Margin: 8.3%, down from 10.8% in the same quarter last year
- Free Cash Flow was -$55.8 million compared to -$119.2 million in the same quarter last year
- Sales Volumes fell 1.9% year on year (1% in the same quarter last year)
- Market Capitalization: $2.35 billion
Company Overview
With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE:SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Select Medical grew its sales at a tepid 2.2% compounded annual growth rate. This was below our standards and is a tough starting point for our analysis.
Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Select Medical’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.7% annually. 
We can dig further into the company’s revenue dynamics by analyzing its number of admissions, which reached 9,351 in the latest quarter. Over the last two years, Select Medical’s admissions averaged 1.3% year-on-year declines. Because this number is in line with its revenue growth, we can see the company kept its prices fairly consistent. 
This quarter, Select Medical missed Wall Street’s estimates and reported a rather uninspiring 24.4% year-on-year revenue decline, generating $1.35 billion of revenue.
Looking ahead, sell-side analysts expect revenue to decline by 10.2% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
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Operating Margin
Select Medical was profitable over the last five years but held back by its large cost base. Its average operating margin of 9% was weak for a healthcare business.
Analyzing the trend in its profitability, Select Medical’s operating margin decreased by 4.3 percentage points over the last five years. A silver lining is that on a two-year basis, its margin has stabilized. Still, shareholders will want to see Select Medical become more profitable in the future.
In Q1, Select Medical generated an operating profit margin of 8.3%, down 2.5 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Select Medical’s unimpressive 2.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
In Q1, Select Medical reported EPS at $0.44, down from $0.75 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Select Medical’s full-year EPS of $1.34 to shrink by 11%.
Key Takeaways from Select Medical’s Q1 Results
It was encouraging to see Select Medical beat analysts’ full-year EPS guidance expectations this quarter. On the other hand, its revenue missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 10.3% to $16.36 immediately following the results.
Select Medical underperformed this quarter, but does that create an opportunity to invest right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.