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Encompass Health Corporation (NYSE:EHC) Just Reported Yearly Earnings: Have Analysts Changed Their Mind On The Stock?

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  • EHC

Encompass Health Corporation (NYSE:EHC) shareholders are probably feeling a little disappointed, since its shares fell 7.9% to US$80.61 in the week after its latest annual results. It was a credible result overall, with revenues of US$4.6b and statutory earnings per share of US$2.85 both in line with analyst estimates, showing that Encompass Health is executing in line with expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

Check out our latest analysis for Encompass Health

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After the latest results, the twelve analysts covering Encompass Health are now predicting revenues of US$5.07b in 2021. If met, this would reflect a meaningful 9.2% improvement in sales compared to the last 12 months. Per-share earnings are expected to bounce 21% to US$3.47. In the lead-up to this report, the analysts had been modelling revenues of US$5.07b and earnings per share (EPS) of US$3.80 in 2021. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a small dip in their earnings per share forecasts.

It might be a surprise to learn that the consensus price target was broadly unchanged at US$95.54, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Encompass Health analyst has a price target of US$106 per share, while the most pessimistic values it at US$70.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.

Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. It's clear from the latest estimates that Encompass Health's rate of growth is expected to accelerate meaningfully, with the forecast 9.2% revenue growth noticeably faster than its historical growth of 7.6%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 7.0% per year. It seems obvious that, while the growth outlook is brighter than the recent past, the analysts also expect Encompass Health to grow faster than the wider industry.

The Bottom Line

The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Encompass Health. Happily, there were no major changes to revenue forecasts, with the business still expected to grow faster than the wider industry. The consensus price target held steady at US$95.54, with the latest estimates not enough to have an impact on their price targets.

Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Encompass Health analysts - going out to 2023, and you can see them free on our platform here.

Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Encompass Health that you should be aware of.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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