SEM

We rate SELECT MEDICAL HOLDINGS CORP (SEM) as a Hold with a composite score of 55.6/100 at a current price of $14.82. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (84th percentile) and stability (74th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (29th percentile) and quality (43th percentile) tempers our overall conviction. We assign a Narrow Moat rating (55/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SELECT MEDICAL HOLDINGS CORP holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 55.6/100 places it at rank #1196 in our full 7,333-stock universe. At $1.6B in market capitalization, SELECT MEDICAL HOLDINGS CORP is a small-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 6% and favorable momentum (63th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 11% (-48.6pp vs sector) narrow to operating margins of 8% (+4.3pp vs sector) and net margins of 4.9%, yielding a gross-to-net conversion rate of 44%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $14.82, SELECT MEDICAL HOLDINGS CORP appears undervalued relative to its fundamentals. Our value factor score of 84/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 7.2x (a 70% discount to the sector median of 23.7x), EV/EBITDA of 3.3x (discounted to peers), P/B of 0.9x, P/S of 0.3x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to SELECT MEDICAL HOLDINGS CORP. The stock presents a balanced risk profile: significant leverage (189% debt-to-equity) and the combination of leverage (189% D/E) and thin margins (4.9% net) amplifies downside risk. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (189% debt-to-equity); the combination of leverage (189% D/E) and thin margins (4.9% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 74th percentile and quality factor at the 43th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (74th percentile) suggests predictable business dynamics; a 138.19% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate SELECT MEDICAL HOLDINGS CORP's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 12.8%, and the balance sheet is managed within acceptable parameters (D/E: 189%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; SELECT MEDICAL HOLDINGS CORP falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 138.19% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, SELECT MEDICAL HOLDINGS CORP receives a Hold rating with a composite score of 55.6/100 (rank #1196 of 7,333). Our quantitative framework assigns a Narrow Moat (55/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 59/100.

Our analysis supports a neutral stance on SELECT MEDICAL HOLDINGS CORP. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.