The firm also established a $10 price target on shares of the Mechanicsburg, PA-based operator of specialty hospital and outpatient rehab clinics.
"Although we believe SEM is the best positioned long-term care hospital patient (LTCH) criteria given more hospital-within-hospital locations, higher acuity focus, and JV relationships, we do not think those business model positives can out-run the patient criteria and 25% rule changes that should dampen the LTCH division earnings power," JMP Securities wrote in an analyst note earlier today.
The firm prefers to avoid the risk of the LTCH segment from an operating perspective. It looks to the specialty hospital and rehab sectors on any pullback through HealthSouth (HLS), which focuses on inpatient rehab facilities and home health, and U.S. Physical Therapy (USPH), with its controlling interest in 516 rehab clinics across the U.S.
"In our opinion, HLS and USPH provide investors with lower risk business models, better balance sheets, and excellent IT platforms to navigate the evolving post-acute healthcare delivery," JMP Securities added.
Shares of Select Medical closed slightly higher on heavy trading volume today.
More than 3.52 million of the company's shares traded today vs. its average volume of 650,143 shares per day.
Separately, TheStreet Ratings Team has a "Buy" rating with a score of B on the stock.
The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels, good cash flow from operations, notable return on equity and increase in stock price during the past year.
The team believes its strengths outweigh the fact that the company has had sub par growth in net income.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: SEM