Here's Why Encompass Health (EHC) Stock is a Strong Buy Now
Encompass Health Corporation EHC is well-poised to grow on the back of expanding patient volumes and revenues per discharge. Its prudent acquisition strategy also continues to aid its Inpatient Rehabilitation business.
Outperformer & Zacks Rank
Over the past year, shares of Encompass Health have gained 32.9%, outperforming the industry’s 9.1% decline. Headquartered in Birmingham, AL, EHC operates as a provider of post-acute healthcare services. With a market cap of $7.1 billion, it has a strong foothold in the domestic market.
Courtesy of solid prospects, this Zacks Rank #1 (Strong Buy) stock is worth adding to your portfolio at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s delve deeper.
The Zacks Consensus Estimate for EHC’s current-year earnings is pegged at $3.36 per share, which has witnessed five upward estimate revisions in the past 30 days against none in the opposite direction. The estimate indicates 17.9% year-over-year growth. Encompass Health beat on earnings in three of the last four quarters and missed once, the average being 14%.
Encompass Health Corporation Price and EPS Surprise
Encompass Health Corporation price-eps-surprise | Encompass Health Corporation Quote
The consensus mark for current-year revenues is pegged at $4.8 billion. Rising inpatient and outpatient revenues will likely support its top-line growth. Our estimate for inpatient revenues for 2023 suggests 9.5% year-over-year growth.
Improving discharge figures and revenues per discharge are expected to be major drivers for the company. We expect total discharges to rise more than 8% year over year in 2023. Its focus on boosting the number of licensed beds and hospitals will likely enhance market density, increasing overlap with the company’s in-patient rehabilitation facilities and building scale.
The company has opened five de novos in the first half of this year, adding a total of 259 beds. It intends to add two more de novos and 31 beds to its existing hospitals in the remaining part of the year. Furthermore, it plans to add around 140 beds to existing facilities in 2024. These additions will boost EHC’s capacity and enable it to capture a bigger share in a highly fragmented market. This is crucial as the demand for such services is continuously increasing.
Due to improving operations, EHC now expects 2023 adjusted EBITDA to be within $920-$950 million, up from the prior guidance of $870-$910 million. The midpoint of the revised guidance indicates a 14.1% jump from the year-ago level.
A Risk
However, there is a factor that investors should keep a careful eye on.
Encompass Health’s long-term debt-to-capitalization of 57.6% is much higher than the industry average of 46%. At second-quarter end, it had cash and cash equivalents of $117.5 million while long-term debt, net of current portion, was $2,697.6 million. Building pressure on the balance sheet is likely to affect its growth initiatives. Nevertheless, we believe that a systematic and strategic plan of action will drive growth in the long term.
Other Key Picks
Some other top-ranked stocks in the medical space are Atai Life Sciences N.V. ATAI, Select Medical Holdings Corporation SEM and HCA Healthcare, Inc. HCA, each carrying a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Atai Life Sciences’ current year earnings indicates a 16.3% improvement from the year-ago reported figure. It has witnessed four upward estimate revisions over the past week against no movement in the opposite direction. ATAI beat earnings estimates in two of the last four quarters, met once and missed on the other occasion.
The Zacks Consensus Estimate for Select Medical’s 2023 earnings indicates a 56.9% year-over-year increase to $1.93 per share. It has witnessed one upward estimate revision over the past month against no movement in the opposite direction. SEM beat earnings estimates in one of the last four quarters, met once and missed on the remaining occasions.
The Zacks Consensus Estimate for HCA Healthcare’s 2023 bottom line suggests a 9.1% increase from the prior-year levels. HCA has witnessed seven upward estimate revisions in the past 30 days against none in the opposite direction. It beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 5.4%.
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HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report
Select Medical Holdings Corporation (SEM) : Free Stock Analysis Report
atai Life Sciences N.V. (ATAI) : Free Stock Analysis Report
Encompass Health Corporation (EHC) : Free Stock Analysis Report
