SEM

Select Medical($SEM) Director Invests $315K After 64% Stock Collapse: What Does This Mean Amid Earnings Slump and Insider Selling Following Concentra Spinoff?

05/06/2025 22:25

Select Medical Holdings Corp ($SEM) director Parvinderjit Khanuja has drawn investor attention by purchasing company shares following a recent price collapse. On May 5, Khanuja acquired 21,000 shares at an average price of $15.02 per share, representing a total investment of $315,420. This purchase comes after $SEM's stock hit a three-month low. The May 2 closing price of $14.26 represents a dramatic 64% decline from its November 2024 peak of $39.93. The stock had already plummeted an additional 21% following the company's disappointing Q1 2025 earnings announcement on May 2. Founded in 1996, Select Medical Holdings specializes in operating medical facilities across the United States, including critical illness recovery hospitals, rehabilitation hospitals, and outpatient rehabilitation clinics. Headquartered in Mechanicsburg, Pennsylvania, the company employs approximately 30,000 people and had demonstrated stable growth until recently. However, recent performance has fallen significantly short of expectations. According to the Q1 2025 results announced on May 2, revenue decreased by 24.4% year-over-year to $1.35 billion, while adjusted earnings per share (EPS) dropped to $0.44 from $0.75 in the previous year, slightly missing analyst expectations of $0.45. The primary driver behind this dramatic revenue decline was the July 2024 spinoff and initial public offering (IPO) of its subsidiary, Concentra Group. As the largest provider of occupational health services in the United States, Concentra listed on the NYSE under the ticker 'CON' with a valuation of approximately $2.97 billion. The Concentra spinoff deprived Select Medical of a significant revenue stream, an impact fully reflected in the Q1 2025 results. Particularly noteworthy is the background of $SEM's steep price decline in late November 2024. On November 26, executive Robert A. Ortenzio sold 3.8 million shares (worth approximately $74.3 million), while director Marilyn B. Tavenner sold 32,000 shares (about $675,000) on the same day. Following these substantial insider sales, the stock price nearly halved, dropping from the $38 range to the $21 range. Insider selling continued thereafter. On December 4, 2024, executive Robert G. Breighner Jr. sold approximately 5,000 shares ($99,000), and most recently, on April 28, 2025, CEO David Chernow sold 225,000 shares ($4.05 million). The stock continued its downward trajectory following Chernow's sale. Amid these consecutive insider sales and deteriorating financial performance, Khanuja's recent purchase could be interpreted as a signal that the current stock price is undervalued. Indeed, on February 24, investment bank Benchmark upgraded its rating on $SEM from 'hold' to 'buy' with a price target of $23. From a financial perspective, Select Medical's debt-to-equity ratio stands at a relatively high 2.31, potentially raising concerns about financial stability. However, the company is focusing on its high-margin inpatient rehabilitation segment and pursuing business expansion through ongoing acquisitions of medical facilities. Following the September acquisition of Valir Rehabilitation Hospital, the company announced the acquisition of Baptist Memorial Restorative Care Hospital assets in April. Industry experts believe that Select Medical is undergoing business restructuring after the Concentra spinoff and could improve long-term profitability through expansion of its inpatient rehabilitation segment. However, high debt levels and recent performance deterioration may continue to pressure the stock in the short term. Meanwhile, the U.S. healthcare services market is expected to experience long-term growth driven by an aging population and increasing chronic diseases. Demand for rehabilitation services, in particular, continues to rise, creating a favorable market environment for Select Medical's core business areas. Nevertheless, potential cost control measures by insurance companies and the government in response to rising healthcare costs remain a potential risk factor. In conclusion, Director Parvinderjit Khanuja's recent stock purchase may signal insider confidence in $SEM, but investors should closely monitor the company's high debt levels, performance changes following the Concentra spinoff, and progress in business restructuring. Analysts currently maintain an average price target of $23.50, suggesting significant upside potential from current levels.

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