Healthcare for Silver Years to Aid Encompass Health (EHC)
Encompass Health Corp. EHC is poised to grow on the back of an ageing population, which should spur long-term demand for the services provided by the company to the said category of customers.
It is the largest owner and operator in the inpatient rehabilitation space, the fourth largest in the home health space and the 11th largest in the hospice space.
The company caters to patients with average age of 76 in the hospitals and 77 in the home health and thus it benefits from the segment of senior citizens. It’s just that people with increasing age, require services that the company provides and demand for the same rises with each passing year.
Encompass Health’s strategy is to gain from the market overlap by having positioned both an inpatient rehabilitation facility (IRF)and a home health agency in the same marketplace, typically within a 30-mile radius. This allows the company to easily coordinate the services and facilitate the transition of patients from leaving the hospital premises to going into home health.
As a solution provider, the company is a high-quality, most efficient player in its space, focused on growth going forward, taking advantage of the demographic tailwind. This growth will come in terms of same-store de novos, particularly for the IRFs, acquisitions through home health and hospice and also bed additions for IRFs.
To this end, the company recently announced that it will build a 60-bed inpatient rehabilitation hospital in Libertyville, IL It also opened an inpatient rehabilitation hospital named the University of Iowa Health Network Rehabilitation Hospital as a joint venture with University of Iowa Health Care.
Its top line has been consistently increasing since 2010, driven by an improvement in revenues from its inpatient rehabilitation plus home health and hospice segment.
The company’s mergers and acquisition strategy is aimed to augment market density, expand overlap with the company’s in-patient rehabilitation facilities and adding scale to hospice. One notable buyout of the company was Alacare Home Health & Hospice, made last year. This deal expands Encompass Health’s services into new markets and complements three markets in which it has existing IRFs in Alabama. The extending footprint will enable Encompass Health to emerge as one of the country’s top 10 largest hospice providers based on Medicare reimbursements.
The company aims to address demand for facility-based and home-based post-acute care services in markets where it is yet to penetrate. This could be possible either by constructing or acquiring new hospitals and purchasing or opening home health and hospice agencies in those extremely fragmented industries. We thus believe, the company’s growth-by-acquisition policy bodes well for the long haul.
Its solvency position is also encouraging by virtue of strong cash flow from operations and borrowings under its revolving credit facility. However, elevated costs due to labor supply shortage can put pressure on margin expansion. Suspension of share buybacks in the face of COVID-19-induced business uncertainty can also affect the company’s bottom line.
Shares of the company have lost 14.4% year to date compared with the industry’s decline of 6.3%. The price performance is disappointing in comparison to some other stocks in the same space, namely Amedisys, Inc. AMED and LHC Group, Inc. LHCG, which have gained 23.2% and 24.8%, respectively, in the same time frame. However, Addus HomeCare Corporation ADUS has shed 8.3% of value.
Encompass Health currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amedisys, Inc. (AMED) : Free Stock Analysis Report
LHC Group, Inc. (LHCG) : Free Stock Analysis Report
Addus HomeCare Corporation (ADUS) : Free Stock Analysis Report
Encompass Health Corporation (EHC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
