Select Medical's 2024 Earnings: A Mixed Bag Amidst Operational Challenges and Growth Opportunities

Select Medical Holdings Corporation (SEM) recently reported its fourth quarter and full-year 2024 earnings, providing investors with a mixed bag of results amidst operational challenges and growth opportunities. The company's adjusted EBITDA rose 14% to $510 million, with a margin increase of 0.6% to 9.8%. However, income from continuing operations remained flat, rising only 0.4% year-over-year, as rising operating costs offset revenue gains.



The Rehab Hospital segment stood out with a 22% margin and 13% revenue growth, while the outpatient rehabilitation segment experienced a decrease in adjusted EBITDA margin from 9.4% to 8.7%. Medicare revenue also decreased across all segments, dropping from 31% to 29% of total revenues. Following the Concentra spin-off in November 2024, Select Medical is focused on critical illness recovery, rehabilitation, and outpatient services.

Despite the flat income from continuing operations, Select Medical's adjusted earnings per common share from continuing operations, net of tax, increased 74.1% to $0.94 for the year ended December 31, 2024. The company's 2025 business outlook projects revenue growth of 7% to 9% and adjusted EBITDA growth of 10% to 12%.

To improve operating margins and enhance shareholder returns, Select Medical should address specific operational inefficiencies, such as rising labor costs and general and administrative expenses. The company can implement cost-effective staffing strategies, optimize scheduling, reduce overtime, and negotiate better contracts with labor unions and vendors. Additionally, Select Medical should streamline administrative processes, reduce wasteful spending, and improve the efficiency of its billing and collections processes to maximize revenue from existing sources.



Select Medical's strategy emphasizes specialized inpatient services and high-quality care to attract commercial payors. Success depends on managing labor costs, especially with ongoing shortages and inflationary pressures. The company's growth strategy includes opportunistic acquisitions and joint ventures, particularly for rehabilitation hospitals with healthcare systems. Integration and synergy realization will be critical for inorganic growth to enhance shareholder value.

In conclusion, Select Medical's 2024 earnings report presents a mixed picture of operational challenges and growth opportunities. While the company's adjusted EBITDA growth is encouraging, investors should be mindful of the flat income from continuing operations and the need to address specific operational inefficiencies. By implementing the suggested strategies and focusing on its core competencies, Select Medical can improve its operating margins and enhance shareholder returns in the long run.