Encompass Health Corporation EHC gains on expanding patient volumes leading to solid contributions from the Inpatient Rehabilitation segment coupled with a strong financial position. A solid 2023 business outlook also acts as a tailwind for the stock.
Zacks Rank & Price Performance
Encompass Health currently carries a Zacks Rank #3 (Hold).
The stock has gained 6.5% in the past six months, against the industry’s 1.5% decline. The Zacks Medical sector has declined 3.8% but the S&P 500 composite increased 5.6% in the same time frame.
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Favorable Style Score
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
The Zacks Consensus Estimate for Encompass Health’s 2023 earnings is pegged at $3.17 per share, indicating an improvement of 11.2% from the year-earlier reading. The consensus mark for 2024 earnings is pegged at $3.52 per share, suggesting 11% growth from the 2023 estimate.
The expected long-term earnings growth rate is pegged at 11.7%, better than the industry’s average of 10.6%.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2023 earnings has been revised upward 3.3% in the past 30 days.
Sound Earnings Surprise History
The bottom line of Encompass Health outpaced earnings estimates in two of the trailing four quarters and missed the mark twice, the average surprise being 4.88%.
Solid Return on Equity
The return on equity for EHC currently stands at 16.8%, which is higher than the industry’s average of 7.7%. The figure substantiates the company’s efficiency in utilizing shareholders’ funds.
A Favorable 2023 Outlook
EHC anticipates revenues within $4,700-$4,770 million this year, the midpoint of which indicates an improvement of 8.9% from the 2022 reported figure.
Adjusted earnings per share are estimated to lie between $2.94 and $3.23, the midpoint of which suggests 8.2% growth from the 2022 figure.
Business Tailwinds
After witnessing a CAGR of 7.2% over the past 12 years (2010-2022), the top line of Encompass Health improved 9.5% in the first quarter of 2023 as well. Revenues continue to benefit on the back of rising patient volumes.
An aging U.S. population along with the need for effective rehabilitative services that empower individuals to resume daily activities is likely to provide a ground for EHC to capitalize on through its Inpatient Rehabilitation unit. The importance of the segment can be substantiated by its decision to divest the home health and hospice business in order to intensify focus on growing its core Inpatient Rehabilitation segment.
Encompass Health follows an active expansion endeavor throughout the year in the form of disclosing plans to set up inpatient rehabilitation hospitals across different U.S. communities and inaugurating the same within a reasonable time period. In the remainder of 2023, EHC plans to open three more de novos and add 93 beds to its existing hospitals.
Each hospital inauguration advances the capabilities and expands the nationwide foothold of Encompass Health. For constructing the hospitals, it often resorts to joint ventures with regional healthcare organizations, which in turn, empower the company to gain an in-depth knowledge of the healthcare needs in its immediate surroundings.
Such expansion initiatives have broadened the healthcare portfolio of Encompass Health which currently contains 157 hospitals spread across 37 states and Puerto Rico.
To pursue such uninterrupted growth-related investments, a solid financial position is of dire need, which puts EHC at an advantage. The leading inpatient rehabilitation hospital operator boasts growing cash reserves and solid cash-generating abilities. As of Mar 31, 2023, cash and cash equivalents increased nearly four-fold from the 2022-end level.
Stocks to Consider
Some better-ranked stocks in the Medical space include Zimmer Biomet Holdings, Inc. ZBH, Medpace Holdings, Inc. MEDP and Novartis NVS. While Zimmer Biomet currently sports a Zacks Rank #1 (Strong Buy), Medpace and Novartis carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Zimmer Biomet’s earnings surpassed estimates in each of the last four quarters, the average surprise being 7.38%. The Zacks Consensus Estimate for ZBH’s 2023 earnings indicates a rise of 8.1%, while the same for revenues suggests an improvement of 5.7% from the respective year-ago actuals. The consensus mark for ZBH’s 2023 earnings has moved 5.8% north in the past 30 days.
The bottom line of Medpace beat estimates in each of the trailing four quarters, the average beat being 24.13%. The Zacks Consensus Estimate for MEDP’s 2023 earnings indicates a rise of 11.4%, while the same for revenues suggests an improvement of 20.9% from the respective prior-year tallies. The consensus mark for MEDP’s 2023 earnings has moved 5.7% north in the past 60 days.
Novartis’ earnings outpaced estimates in each of the trailing four quarters, the average surprise being 5.15%. The Zacks Consensus Estimate for NVS’s 2023 earnings indicates a rise of 9.3%, while the same for revenues suggests an improvement of 4.6% from the respective year-ago actuals. The consensus mark for NVS’s 2023 earnings has moved 1.2% north in the past 30 days.
Shares of Zimmer Biomet and Novartis have gained 9.3% and 12.3%, respectively, in the past six months. However, the Medpace stock has declined 4% in the same time frame.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Novartis AG (NVS) : Free Stock Analysis Report
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Encompass Health Corporation (EHC) : Free Stock Analysis Report
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