Select Medical (Concentra) Spin-off Notes

January 26, 2024

I had a chance to talk to investor relations from Select Medical Holdings Corporation (SEM) which is the latest company to announce that it is considering a spin-off. Cutting through the typical boilerplate language, management thinks the company is trading at a discount to its SOTP fair value.

Today, Select Medical has 4 different divisions: Critical Illness Recovery Hospital, Rehabilitation Hospital, Outpatient Rehabilitation, and Concentra (PT/hospital for customers that got hurt on the job).

After speaking to IR, I got a sense for what a reasonable set of comps would be and created a basic SOTP model (screen shot below). I think the stock is probably worth $32, implying ~23% upside.


That is not enough upside to get me excited. Further, one small adjustment to my assigned multiples would have a big impact on the fair share price. For example, if I bump Concentra’s fair multiple from 13x to 11.5x, my price target decreases to $28.

The spin-off of Concentra is expected to be completed by late 2024 and tax-free in nature. I will continue to watch this one and fine tune my analysis.

 

January 4, 2024 

On January 3, Select Medical Holdings Corporation (SEM) announced that it plans to potentially spin-off its occupational health services business, Concentra. It is intended to be complete by late 2024 as a tax-free spin to SEM shareholders.

SEM has four main segments Critical Illness Recovery Hospital, Rehabilitation Hospital, Outpatient Rehabilitation and Concentra. The SpinCo, Concentra, operates through its medical centers and contract services provided at employer worksites delivering occupational medicine, physical therapy, veterans healthcare, and consumer health services.  In 2022 , Concentra, generated $1.7BN or ~ 27% of the company’s revenue, and $332MM or ~52% of the companies adj. EBITDA.

On a consolidated basis, SEM doesn’t too interesting. It’s trading at 13x forward earnings and an EV/NTM EBITDA multiple of 9.9x. EPS is expected to grow at ~10% going forward. I will continue to dig in to determine if this transaction will unlock SOTP value.