Overview
RBC Capital reduced its price target for Select Medical Holdings (NYSE: SEM) to $19 from $20, while continuing to carry an Outperform rating on the stock. The revision follows the company’s fourth-quarter financial report, which showed adjusted EBITDA below expectations and an initial 2026 guidance level described by RBC as softer-than-expected.
Market reaction and valuation
Shares of Select Medical fell roughly 6.7% on Friday after the earnings release, adding to a weekly decline of about 8.4%. The stock was trading at $14.93, below its 52-week high of $19.40. Select Medical’s market capitalization stands at $1.95 billion and the company trades at a price-to-earnings ratio of 19.1. Analyst price targets on the name range from $16 to $20.
Operational commentary from management
RBC Capital analyst Ben Hendrix highlighted management’s remarks on the high-cost outlier threshold. Management indicated it does not anticipate a material headwind from that threshold within its critical illness recovery hospital segment in 2026. RBC said this commentary remains encouraging despite the lower price target.
Drivers of the price-target change
RBC attributed the lower price target to Select Medical’s initial 2026 EBITDA guidance. The firm also noted that operating margin results in the quarter were affected by one-time items. RBC pointed to potential upside if operating margin improves and if stability in the long-term acute care business continues.
Quarterly results in detail
Select Medical reported fourth-quarter 2025 earnings per share of $0.16, missing the forecasted $0.23 - a 30.43% shortfall relative to expectations. Revenue for the quarter was $1.4 billion, above the anticipated $1.36 billion, representing a 2.94% surprise to the upside. The company’s mixed results - revenue beating while EPS missed - were central to investor and analyst attention following the release. The earnings announcement did not prompt any specific analyst upgrades or downgrades noted in the recent reporting.
Research and tools
Independent analysis from InvestingPro places a Fair Value estimate on the stock at $17.11, suggesting potential upside from current trading levels. InvestingPro also indicates there are additional analytical resources available, including seven ProTips and comprehensive financial metrics for users seeking deeper insight into Select Medical’s recovery prospects.
Key points
- RBC cut its price target to $19 from $20 but retained an Outperform rating - impacting investor views on the healthcare services sector and healthcare equities.
- Q4 adjusted EBITDA missed expectations and initial 2026 guidance was softer-than-expected, contributing to near-term stock weakness.
- Revenue exceeded estimates while EPS missed, producing a mixed quarterly picture that matters to hospital operators and long-term acute care providers.
Risks and uncertainties
- Operational margin was affected by one-time items in the quarter - a risk to near-term profitability for healthcare services operators.
- Softer 2026 EBITDA guidance creates uncertainty around earnings recovery and cash flow conversion in the medical facilities sector.
- Share-price volatility following the results underscores market sensitivity to guidance and quarterly performance in healthcare equities.