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Compelling Reasons to Hold on to Encompass Health Stock Right Now
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Encompass Health Corporation (EHC - Free Report) has been gaining on growing patient admissions, commendable expansion initiatives and a robust cash position. A solid 2024 business outlook also reinforces investors’ confidence in the stock.
EHC’s Zacks Rank & Price Performance
Encompass Health currently carries a Zacks Rank #3 (Hold).
The stock has gained 43.4% in the past year compared with the industry’s 34.5% growth. The Zacks Medical sector has rallied 13.1% and the S&P 500 composite increased 33.4% in the same time frame.
Image Source: Zacks Investment Research
Favorable Style Score of EHC
EHC is well-poised for progress, as evidenced by its impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of all three factors.
Robust Growth Prospects of EHC
The Zacks Consensus Estimate for Encompass Health’s 2024 earnings is pegged at $4.18 per share, indicating an improvement of 14.8% from the year-earlier reading. The estimate for revenues is $5.3 billion, implying 10.6% growth from the prior-year number.
The consensus estimate for 2025 earnings is pegged at $4.63 per share, indicating 10.8% growth from the 2024 estimate. The same for revenues is $5.8 billion, which indicates a rise of 8.6% from the prior-year estimate.
EHC’s Northbound Estimate Revision
The Zacks Consensus Estimate for 2024 earnings has been revised upward 2% in the past 60 days.
Impressive Earnings Surprise History of EHC
The bottom line of Encompass Health outpaced earnings estimates in each of the trailing four quarters, the average surprise being 14.12%.
Solid Return on Equity of EHC
The return on equity for EHC is currently 17.8%, which is higher than the industry’s average of 8.4%. The figure substantiates the company’s efficiency in utilizing shareholders’ funds.
EHC’s Solid 2024 Outlook
EHC forecasts revenues to be in the range of $5.275-$5.35 billion for 2024, the midpoint of which indicates 10.7% growth from the 2023 reported figure.
Adjusted earnings per share from continuing operations are estimated to lie between $3.97 and $4.22, the midpoint of which implies 12.5% growth from the 2023 figure.
Business Tailwinds of EHC
Encompass Health continues to see revenue growth, driven by increasing patient volumes. Net operating revenues rose 11.5% year over year in the first half of 2024. An aging U.S. population and growing demand for rehabilitative services to help individuals return to normal daily activities after an illness or injury are expected to sustain the solid demand for EHC’s services.
The company’s expansion efforts are noteworthy. Encompass Health builds inpatient rehabilitation hospitals in underserved regions across the United States and increases capacity by adding beds to existing facilities.
Management plans to add around 110 beds to existing facilities in 2024. Each new hospital strengthens EHC’s capabilities and broadens its nationwide presence. Over the 2023-2027 period, it plans to inaugurate six to ten de novos each year as well as make bed additions in the range of 80-120 each year.
Additionally, the company forms joint ventures with regional healthcare providers, enhancing its understanding of local healthcare needs. As a result, Encompass Health now operates 165 hospitals across 38 states and Puerto Rico, with its most recent addition being the 39-bed Rehabilitation Hospital of Fort Mill in South Carolina.
To support such growth initiatives, a strong financial foundation is crucial, and Encompass Health is well-positioned in this regard. The company has significantly increased its cash reserves, with cash and cash equivalents more than doubling itself as of June 30, 2024, compared with the 2023-end level. It also generated $456.2 million in operating cash flow during the first half of 2024.
EHC’s Key Risks
Rising labor costs remain a key concern, with salaries and benefits—the largest share of the company’s expenses—increasing 11.6% year over year in the first half of 2024. Labor shortages, especially for nurses and therapists, are likely to necessitate costly contract labor, putting pressure on Encompass Health’s margins.
Development expenses are also increasing due to new hospital openings. The company’s debt remains high, with $2.7 billion in long-term debt as of June 30, 2024, which is likely to induce an increase in interest expenses. EHC has a high leverage ratio, as substantiated by its total debt to total capital of 52.3% at the second-quarter end, which is above the industry average of 50.3%.
DaVita’s earnings surpassed estimates in each of the last four quarters, the average surprise being 24.24%. The Zacks Consensus Estimate for DVA’s 2024 earnings indicates a rise of 18% while the estimate for revenues implies an improvement of 5.4% from the respective year-ago actuals. The consensus mark for DVA’s earnings has moved 3.8% north in the past 60 days.
The bottom line of HCA Healthcare beat estimates in three of the trailing four quarters and missed the mark once, the average surprise being 8.24%. The Zacks Consensus Estimate for HCA’s 2024 earnings indicates a rise of 18.4% while the estimate for revenues implies an improvement of 8.9% from the respective prior-year tallies. The consensus mark for HCA’s earnings has moved 0.7% north in the past 30 days.
Pennant’s earnings outpaced estimates in three of the trailing four quarters and matched the mark once, the average surprise being 7.67%. The Zacks Consensus Estimate for PNTG’s 2024 earnings indicates a rise of 26% while the estimate for revenues implies an improvement of 24.4% from the respective prior-year tallies. The consensus mark for PNTG’s earnings has moved 2.2% north in the past 30 days.
Shares of DaVita, HCA Healthcare and Pennant have gained 75.2%, 59.4% and 201.4%, respectively, in the past year.
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Compelling Reasons to Hold on to Encompass Health Stock Right Now
Encompass Health Corporation (EHC - Free Report) has been gaining on growing patient admissions, commendable expansion initiatives and a robust cash position. A solid 2024 business outlook also reinforces investors’ confidence in the stock.
EHC’s Zacks Rank & Price Performance
Encompass Health currently carries a Zacks Rank #3 (Hold).
The stock has gained 43.4% in the past year compared with the industry’s 34.5% growth. The Zacks Medical sector has rallied 13.1% and the S&P 500 composite increased 33.4% in the same time frame.
Image Source: Zacks Investment Research
Favorable Style Score of EHC
EHC is well-poised for progress, as evidenced by its impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of all three factors.
Robust Growth Prospects of EHC
The Zacks Consensus Estimate for Encompass Health’s 2024 earnings is pegged at $4.18 per share, indicating an improvement of 14.8% from the year-earlier reading. The estimate for revenues is $5.3 billion, implying 10.6% growth from the prior-year number.
The consensus estimate for 2025 earnings is pegged at $4.63 per share, indicating 10.8% growth from the 2024 estimate. The same for revenues is $5.8 billion, which indicates a rise of 8.6% from the prior-year estimate.
EHC’s Northbound Estimate Revision
The Zacks Consensus Estimate for 2024 earnings has been revised upward 2% in the past 60 days.
Impressive Earnings Surprise History of EHC
The bottom line of Encompass Health outpaced earnings estimates in each of the trailing four quarters, the average surprise being 14.12%.
Solid Return on Equity of EHC
The return on equity for EHC is currently 17.8%, which is higher than the industry’s average of 8.4%. The figure substantiates the company’s efficiency in utilizing shareholders’ funds.
EHC’s Solid 2024 Outlook
EHC forecasts revenues to be in the range of $5.275-$5.35 billion for 2024, the midpoint of which indicates 10.7% growth from the 2023 reported figure.
Adjusted earnings per share from continuing operations are estimated to lie between $3.97 and $4.22, the midpoint of which implies 12.5% growth from the 2023 figure.
Business Tailwinds of EHC
Encompass Health continues to see revenue growth, driven by increasing patient volumes. Net operating revenues rose 11.5% year over year in the first half of 2024. An aging U.S. population and growing demand for rehabilitative services to help individuals return to normal daily activities after an illness or injury are expected to sustain the solid demand for EHC’s services.
The company’s expansion efforts are noteworthy. Encompass Health builds inpatient rehabilitation hospitals in underserved regions across the United States and increases capacity by adding beds to existing facilities.
Management plans to add around 110 beds to existing facilities in 2024. Each new hospital strengthens EHC’s capabilities and broadens its nationwide presence. Over the 2023-2027 period, it plans to inaugurate six to ten de novos each year as well as make bed additions in the range of 80-120 each year.
Additionally, the company forms joint ventures with regional healthcare providers, enhancing its understanding of local healthcare needs. As a result, Encompass Health now operates 165 hospitals across 38 states and Puerto Rico, with its most recent addition being the 39-bed Rehabilitation Hospital of Fort Mill in South Carolina.
To support such growth initiatives, a strong financial foundation is crucial, and Encompass Health is well-positioned in this regard. The company has significantly increased its cash reserves, with cash and cash equivalents more than doubling itself as of June 30, 2024, compared with the 2023-end level. It also generated $456.2 million in operating cash flow during the first half of 2024.
EHC’s Key Risks
Rising labor costs remain a key concern, with salaries and benefits—the largest share of the company’s expenses—increasing 11.6% year over year in the first half of 2024. Labor shortages, especially for nurses and therapists, are likely to necessitate costly contract labor, putting pressure on Encompass Health’s margins.
Development expenses are also increasing due to new hospital openings. The company’s debt remains high, with $2.7 billion in long-term debt as of June 30, 2024, which is likely to induce an increase in interest expenses. EHC has a high leverage ratio, as substantiated by its total debt to total capital of 52.3% at the second-quarter end, which is above the industry average of 50.3%.
Stocks to Consider
Some better-ranked stocks in the Medical space are DaVita Inc. (DVA - Free Report) , HCA Healthcare, Inc. (HCA - Free Report) and The Pennant Group, Inc. (PNTG - Free Report) . While DaVita currently sports a Zacks Rank #1 (Strong Buy), HCA Healthcare and Pennant carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita’s earnings surpassed estimates in each of the last four quarters, the average surprise being 24.24%. The Zacks Consensus Estimate for DVA’s 2024 earnings indicates a rise of 18% while the estimate for revenues implies an improvement of 5.4% from the respective year-ago actuals. The consensus mark for DVA’s earnings has moved 3.8% north in the past 60 days.
The bottom line of HCA Healthcare beat estimates in three of the trailing four quarters and missed the mark once, the average surprise being 8.24%. The Zacks Consensus Estimate for HCA’s 2024 earnings indicates a rise of 18.4% while the estimate for revenues implies an improvement of 8.9% from the respective prior-year tallies. The consensus mark for HCA’s earnings has moved 0.7% north in the past 30 days.
Pennant’s earnings outpaced estimates in three of the trailing four quarters and matched the mark once, the average surprise being 7.67%. The Zacks Consensus Estimate for PNTG’s 2024 earnings indicates a rise of 26% while the estimate for revenues implies an improvement of 24.4% from the respective prior-year tallies. The consensus mark for PNTG’s earnings has moved 2.2% north in the past 30 days.
Shares of DaVita, HCA Healthcare and Pennant have gained 75.2%, 59.4% and 201.4%, respectively, in the past year.