Healthcare services company Select Medical (NYSE: SEM) reported Q4 CY2025 results topping the market’s revenue expectations, with sales up 6.4% year on year to $1.40 billion. The company’s full-year revenue guidance of $5.7 billion at the midpoint came in 0.8% above analysts’ estimates. Its GAAP profit of $0.16 per share was 33.8% below analysts’ consensus estimates.

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Company Overview

With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Select Medical struggled to consistently increase demand as its $5.45 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a sign of lacking business quality.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Select Medical’s annualized revenue growth of 1.6% over the last two years is above its five-year trend, which is encouraging.

We can better understand the company’s revenue dynamics by analyzing its number of admissions, which reached 8,950 in the latest quarter. Over the last two years, Select Medical’s admissions averaged 10.7% year-on-year declines. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Select Medical reported year-on-year revenue growth of 6.4%, and its $1.40 billion of revenue exceeded Wall Street’s estimates by 2.3%.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Select Medical was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.8% was weak for a healthcare business.

Looking at the trend in its profitability, Select Medical’s operating margin decreased by 5.3 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 3.4 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Select Medical generated an operating margin profit margin of 4.6%, up 3 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Select Medical, its EPS declined by 9.4% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

Diving into the nuances of Select Medical’s earnings can give us a better understanding of its performance. As we mentioned earlier, Select Medical’s operating margin expanded this quarter but declined by 5.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q4, Select Medical reported EPS of $0.16, up from negative $0.13 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Select Medical’s full-year EPS of $1.18 to grow 16.1%.

Key Takeaways from Select Medical’s Q4 Results

It was encouraging to see Select Medical beat analysts’ revenue expectations this quarter. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its full-year EPS guidance missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.8% to $15.48 immediately following the results.

Select Medical didn’t show it’s best hand this quarter, but does that create an opportunity to buy the stock right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here (it’s free).