Here's Why Investors Should Add Encompass Health (EHC) to Portfolio
Encompass Health Corporation EHC is aided by a well-performing Inpatient Rehabilitation unit, a robust 2023 business outlook, an expanding healthcare portfolio and a commendable financial position.
Top Zacks Rank & Upbeat Price Performance
Encompass Health currently carries a Zacks Rank #2 (Buy).
The stock has gained 38.5% in a year against the industry’s 6% decline. The Zacks Medical sector has declined 8% but the S&P 500 composite has risen 16.5% in the same time frame.
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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.
Robust Growth Prospects
The Zacks Consensus Estimate for Encompass Health’s 2023 earnings is pegged at $3.19 per share, suggesting growth of 11.9% from the prior-year reported figure. The consensus mark for 2024 earnings is pegged at $3.54 per share, indicating an improvement of 10.8% from the prior-year estimate.
The expected long-term earnings growth rate is pegged at 11.7%, better than the industry’s average of 10.5%.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2023 earnings has been revised upward 1.3% in the past 60 days.
Decent Earnings Surprise History
EHC’s bottom line outpaced estimates in two of the trailing four quarters and missed the mark twice, the average surprise being 4.88%.
Valuation: Cheaply Priced
Price-to-earnings (P/E) is one of the multiples used for valuing healthcare stocks. Encompass Health has a reading of 19.83, compared with the industry’s forward 12-month P/E ratio of 19.97. It is quite evident that the stock is currently undervalued.
A Strong View for 2023
EHC forecasts revenues within $4,700-$4,770 million this year, the midpoint of which suggests 8.9% growth from the 2022 figure.
Adjusted earnings per share are anticipated between $2.94 and $3.23, the midpoint of which indicates an improvement of 8.2% from the 2022 level.
Key Business Tailwinds
The top line of Encompass Health is aided by a growing patient base at its inpatient rehabilitation hospitals. The dire need for specialized rehabilitative treatment that helps people recovering from chronic illnesses and injuries return to normal daily activities is likely to sustain the solid demand for services provided by its Inpatient Rehabilitation segment.
Over the 2020-2025 period, management expects to achieve revenue growth in the range of 8% to 10%.
The Inpatient Rehabilitation unit holds promising growth potential owing to its active expansion endeavor that it usually resorts to throughout the year. Encompass Health either takes the sole responsibility or forms joint ventures with renowned healthcare organizations to build inpatient rehabilitation hospitals across different U.S. communities and make the same operable within a reasonable time frame.
In addition to delving into underserved communities, the continuous addition of hospitals to its portfolio have bolstered its nationwide reach and made Encompass Health the largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and revenues. Currently, it operates 158 hospitals across 37 states and Puerto Rico. Apart from constructing inpatient rehabilitation hospitals, EHC also adds beds to its existing facilities. It aims to add 93 beds to existing hospitals in the second half of 2023.
Encompass Health also resorts to technology investments for strengthening its capabilities and as an example of the same, it has been empowered to provide in-house dialysis through Tableau. This, in turn, lowers the dependence of the inpatient rehabilitation hospital operator on third-party providers for delivering the service as well as brings down the cost of such services. 64 of EHC’s hospitals are equipped with this lucrative facility, per the last earnings call.
A strong financial position provides a cushion to Encompass Health to pursue such uninterrupted growth-related initiatives. A solid cash reserve and robust cash flows substantiate its noteworthy financial stand. Its return on equity of 16.8% remains higher than the industry’s average of 8%, which implies efficient utilization of shareholders’ funds.
Other Stocks to Consider
Some other top-ranked stocks in the Medical space are Amphastar Pharmaceuticals, Inc. AMPH, Ligand Pharmaceuticals Incorporated LGND and Alkermes plc ALKS, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Amphastar Pharmaceuticals’ earnings surpassed estimates in three of the last four quarters and matched the mark once, the average surprise being 33.83%. The Zacks Consensus Estimate for AMPH’s 2023 earnings indicates a rise of 30%, while the same for revenues suggests an improvement of 17.4% from the respective year-ago actuals. The consensus mark for AMPH’s 2023 earnings has moved 7.6% north in the past 30 days.
Ligand Pharmaceuticals’ earnings beat estimates in two of the trailing four quarters and missed the mark twice, the average surprise being 21.50%. The Zacks Consensus Estimate for LGND’s 2023 earnings suggests an improvement of 9.6% from the year-ago actual. The consensus mark for LGND's 2023 earnings has moved 9.6% north in the past 60 days.
The bottom line of Alkermes outpaced estimates in three of the trailing four quarters and matched the mark once, the average surprise being 90.83%. The Zacks Consensus Estimate for ALKS’s 2023 earnings is pegged at 79 cents per share, which has more than doubled from the prior year. The same for revenues suggests an improvement of 35.1% from the year-ago actual. The consensus mark for ALKS’s 2023 earnings has moved 12.9% north in the past 30 days.
The Amphastar Pharmaceuticals stock has gained 53.5% in a year. However, shares of Ligand Pharmaceuticals and Alkermes have declined 24.7% and 0.8%, respectively, in the same time frame.
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Alkermes plc (ALKS) : Free Stock Analysis Report
Amphastar Pharmaceuticals, Inc. (AMPH) : Free Stock Analysis Report
Ligand Pharmaceuticals Incorporated (LGND) : Free Stock Analysis Report
Encompass Health Corporation (EHC) : Free Stock Analysis Report
