Encompass Health Corporation EHC benefits from growing patient volumes, an expanding inpatient rehabilitation network and a notable financial position. An optimistic business outlook for 2024 also reinforces investors’ confidence in the stock.

EHC’s Zacks Rank & Upbeat Price Performance

Encompass Health currently carries a Zacks Rank #2 (Buy).

The stock has gained 40.3% in the past year compared with the industry’s 10.2% growth. The Zacks Medical sector has delined 4.1%, while the S&P 500 composite has risen 26.3% in the same time frame.

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EHC’s Favorable Style Score

EHC carries an impressive Value Score of A. Value Score helps find stocks that are undervalued. Back-tested results have shown so far that stocks with a favorable Value Score in combination with a solid Zacks Rank are the best investment bets.

Encompass Health’s Robust Growth Prospects

The Zacks Consensus Estimate for Encompass Health’s 2024 earnings is pegged at $4.29 per share, indicating a year-over-year improvement of 17.9%. The consensus mark for revenues is pegged at $5.4 billion, implying a year-over-year increase of 11.3%.

The consensus estimate for 2025 earnings is pegged at $4.76 per share, indicating an increase of 11% from the 2024 estimate. The consensus estimate for revenues is pegged at $5.8 billion, implying 8.8% growth from the 2024 estimate.

EHC’s Northbound Estimate Revision

The Zacks Consensus Estimate for 2024 earnings has been revised upward 2.4% in the past 60 days.

Encompass Health’s Impressive Earnings Surprise History

EHC’s bottom line outpaced estimates in each of the trailing four quarters, the average surprise being 13.59%.

EHC’s Valuation: Cheaply Priced

Price-to-earnings (P/E) is one of the multiples used for valuing healthcare stocks.  Encompass Health has a reading of 19.67 compared with the medical-outpatient and home healthcare industry’s forward 12-month P/E ratio of 19.81. It is quite evident that the stock is currently undervalued.

EHC’s Strong View for 2024

EHC forecasts revenues to be within the range of $5.325-$5.375 billion for 2024, the midpoint of which indicates an improvement of 11.4% from the 2023 figure.  

Adjusted earnings per share from continuing operations are anticipated between $4.19 and $4.33, the midpoint of which implies 17% growth from the 2023 level.

Encompass Health’s Key Business Tailwinds

Encompass Health's revenue growth is supported by an expanding patient base at its inpatient rehabilitation hospitals. In the first nine months of 2024, revenues increased 11.6% year over year. The significant demand for specialized rehabilitative care, which aids individuals recovering from chronic illnesses and injuries in resuming daily activities, is expected to sustain the strong performance of the Inpatient Rehabilitation segment.

The Inpatient Rehabilitation unit shows significant growth potential, driven by ongoing expansion initiatives. Encompass Health frequently undertakes sole projects or collaborates through joint ventures with esteemed healthcare organizations to establish new inpatient rehabilitation hospitals across U.S. communities. These facilities are made operational within a reasonable timeframe, with each hospital opening enhancing the company's capabilities and strengthening its nationwide presence.

Currently, Encompass Health operates 166 hospitals in 38 states and Puerto Rico. The last hospital that was opened and added to its inpatient rehabilitation hospital network was the Rehabilitation Hospital of Houston in November 2024. This December, it unveiled preliminary plans to construct an inpatient rehabilitation hospital in Bangor, ME. The facility will be equipped with 50 beds and is likely to commence operations in 2027. 

In 2024, the company plans to open six de novo hospitals, adding 280 beds in total and add around 110 beds to existing facilities. Between 2023 and 2027, management aims to open six to ten de novos annually and add beds ranging from 80 to 120 annually.

A robust financial position underpins Encompass Health’s ability to sustain its growth initiatives. Its increasing cash reserves and strong cash generation capabilities reflect this strength. As of Sept. 30, 2024, cash and cash equivalents more than doubled from the 2023-end level. The company generated $724 million in operating cash flows during the first nine months of 2024, marking a 11.4% year-over-year increase. For 2024, adjusted free cash flow is projected to range between $560 million and $620 million.

Other Stocks to Consider

Some other top-ranked stocks in the Medical space are Inspire Medical Systems, Inc. INSP, Doximity, Inc. DOCS and Entrada Therapeutics, Inc. TRDA, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inspire Medical Systems’ earnings surpassed estimates in each of the last four quarters, the average surprise being 649.90%. The Zacks Consensus Estimate for INSP’s 2024 earnings is pegged at $1.33 per share. A loss of 72 cents per share was incurred in the prior year. The consensus mark for revenues implies an improvement of 27.4% from the year-ago actual. The consensus mark for INSP’s 2024 earnings has moved 77.3% north in the past 60 days. 

Doximity’s earnings beat estimates in each of the trailing four quarters, the average surprise being 22.12%. The Zacks Consensus Estimate for DOCS’ 2024 earnings indicates a rise of 20% while the consensus mark for revenues implies an improvement of 13.4% from the respective year-ago actuals. The consensus mark for DOCS’ 2024 earnings has moved 7.5% north in the past 60 days.

The bottom line of Entrada Therapeutics outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 37.72%. The Zacks Consensus Estimate for TRDA’s 2024 earnings is pegged at $1.12 per share. A loss of 20 cents per share was incurred in the prior year. The consensus mark for revenues implies an improvement of 45.1% from the year-ago actual. The consensus mark for TRDA’s 2024 earnings has moved 4.7% north in the past 30 days. 

Shares of Doximity and Entrada Therapeutics have gained 99.3% and 13.1%, respectively, in the past year. However, Inspire Medical Systems stock has lost 9.3% in the same time frame. 

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