Encompass Health (EHC) AI Stock Analysis

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Encompass Health

(NYSE:EHC)

Select Model

Outperform 73 (OpenAI - 4o)

Rating:73Outperform

Price Target:

$130.00

▲(3.28% Upside)

Encompass Health's strong financial performance, particularly in revenue and EBITDA growth, is a major positive factor. The technical indicators support a bullish trend, though caution is advised due to potential overbought conditions. Valuation is moderate, and the earnings call provided a positive outlook despite some operational challenges.

Positive Factors

Revenue Growth

Encompass Health's strong revenue growth of 12% in Q2 2025 indicates robust demand for its services, supporting long-term financial stability and market expansion.

Strategic Expansion

The opening of new hospitals in Florida demonstrates Encompass Health's commitment to expanding its market presence, which is crucial for capturing more patient referrals and increasing revenue.

Joint Venture

The joint venture with BSA Health System to open a new hospital in Texas enhances Encompass Health's strategic partnerships, potentially increasing patient referrals and strengthening its competitive position.

Negative Factors

Gross Profit Margin Decline

A decline in gross profit margin suggests rising costs or pricing pressures, which could impact Encompass Health's profitability if not managed effectively.

Negative Free Cash Flow

Negative free cash flow indicates potential cash management issues, which could limit Encompass Health's ability to invest in growth opportunities or manage debt effectively.

Labor Retention Challenges

High nurse turnover rates can lead to increased hiring and training costs, affecting operational efficiency and potentially impacting the quality of patient care.

Encompass Health (EHC) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$12.68B

Dividend Yield0.54%

Average Volume (3M)638.24K

Price to Earnings (P/E)24.6

Beta (1Y)0.65

Revenue Growth11.80%

EPS Growth30.02%

CountryUS

Employees28,572

SectorHealthcare

Sector Strength45

IndustryMedical - Care Facilities

Share Statistics

EPS (TTM)1.40

Shares Outstanding100,723,830

10 Day Avg. Volume591,652

30 Day Avg. Volume638,244

Financial Highlights & Ratios

PEG Ratio0.72

Price to Book (P/B)4.46

Price to Sales (P/S)1.72

P/FCF Ratio25.61

Enterprise Value/Market Cap1.25

Enterprise Value/Revenue2.80

Enterprise Value/Gross Profit6.28

Enterprise Value/Ebitda12.15

Forecast

1Y Price Target

$139.75

Price Target Upside11.03% Upside

Rating ConsensusStrong Buy

Number of Analyst Covering9

Encompass Health Business Overview & Revenue Model

Company DescriptionEncompass Health Corporation (EHC) is a leading provider of post-acute healthcare services in the United States, specializing in inpatient rehabilitation, home health, and hospice care. The company operates a network of inpatient rehabilitation hospitals, providing comprehensive rehabilitation services for patients recovering from serious illnesses or injuries, such as strokes, spinal cord injuries, and brain injuries. Additionally, Encompass Health offers home health and hospice services, focusing on delivering high-quality care that enhances the quality of life for patients and their families.

How the Company Makes MoneyEncompass Health generates revenue primarily through its inpatient rehabilitation hospitals, home health services, and hospice care. The company is reimbursed by Medicare, Medicaid, and private insurance for the services provided to patients, with a significant portion of revenue coming from Medicare reimbursements for rehabilitation services. The revenue model is based on the number of patients treated, length of stay, and the complexity of care provided. Additionally, Encompass Health has established strategic partnerships with various healthcare organizations and payers, which contribute to its earnings by enhancing service offerings and increasing patient referrals. The company also focuses on operational efficiency and quality care, which can lead to improved reimbursement rates and patient satisfaction, further bolstering its financial performance.

Encompass Health Key Performance Indicators (KPIs)

Any

Number of Hospitals

Number of Hospitals
Indicates the scale and reach of the company's healthcare network, which can impact patient access, market presence, and potential for revenue growth.

Chart InsightsEncompass Health's hospital count has steadily increased from 137 in 2020 to 166 in 2024, reflecting a strategic focus on expansion. The latest earnings call underscores this growth trajectory, with plans for seven new hospitals and one satellite in 2025, particularly in Florida. This expansion aligns with their strong financial performance, including significant revenue and EBITDA growth. However, challenges such as rising medical costs and uncertain tax benefits could impact margins. The continued expansion is crucial for sustaining growth and capitalizing on the increasing demand for healthcare services.

Data provided by:

Main Street Data

Encompass Health Earnings Call Summary

Earnings Call Date:Aug 04, 2025

(Q2-2025)

% Change Since: |

Next Earnings Date:Oct 22, 2025

Earnings Call Sentiment Positive

The earnings call for Encompass Health's second quarter of 2025 presented a strong performance with significant increases in revenue and EBITDA, impressive discharge growth, and successful expansion efforts. However, challenges remain in managing benefits expenses and labor retention. Despite these challenges, the overall sentiment is positive due to the substantial financial growth and strategic expansions.

Q2-2025 Updates

Positive Updates

Strong Revenue and EBITDA Growth

Revenue for the second quarter increased 12% to $1.46 billion, and adjusted EBITDA increased 17.2% to $308.6 million.

Positive Discharge Growth

Total discharges for Q2 increased 7.2%, including 4.7% in same-store. Neurological conditions and stroke discharges grew 12% and 6.7%, respectively.

Expansion and New Hospital Openings

In Q2, a new 60-bed hospital was opened in Fort Myers, Florida, and 26 beds were added to an existing hospital. In July, a new 50-bed hospital was opened in Daytona Beach, Florida, and 20 beds were added to another existing hospital.

Improved Labor Costs

Contract labor and sign-on and shift bonuses declined by $4.9 million or 15.1%, with contract labor FTEs representing 1.3% of total FTEs.

Increased 2025 Guidance

The company raised its 2025 guidance with net operating revenue expected to be $5.88 billion to $5.98 billion, adjusted EBITDA of $1.22 billion to $1.25 billion, and adjusted earnings per share of $5.12 to $5.34.

Strong Free Cash Flow Growth

Q2 adjusted free cash flow increased 30.5% to approximately $186 million, bringing year-to-date adjusted free cash flow to approximately $408 million, a 31.7% increase from the first half of 2024.

Negative Updates

Increased Benefits Expense

Q2 benefit expense per FTE increased by 18%, driven by an increase in the frequency of high dollar medical claims.

Continued Challenges in Labor Market

Turnover rates for nurses are hovering around pre-pandemic levels just at 21%, indicating ongoing challenges in retaining staff despite improvements.

Potential Increase in Bad Debt

Although Q2 bad debt expense was low at 2%, there is an expectation of some resumption of TPE activity which could increase this number in the second half of the year.

Company Guidance

During the second quarter of 2025, Encompass Health reported significant improvements across various key metrics. The company achieved a 12% increase in revenue, reaching $1.46 billion, and a 17.2% rise in adjusted EBITDA to $308.6 million. Discharge growth was robust at 7.2%, with same-store discharges up by 4.7%. Particularly noteworthy was the 12% growth in neurological conditions and a 6.7% increase in stroke cases. The discharge to community rate was favorable at 8.5%, and the discharge to SNF rate was 5.8%, both surpassing industry averages. The company opened new facilities, including a 60-bed hospital in Fort Myers and a 50-bed hospital in Daytona Beach, with plans to open additional hospitals by year's end. Adjusted free cash flow saw a 30.5% increase to $186 million for the quarter, contributing to a strong year-to-date total of $408 million, a 31.7% improvement from the previous year. Encompass Health also revised its 2025 guidance upward, now expecting net operating revenue of $5.88 billion to $5.98 billion, adjusted EBITDA of $1.22 billion to $1.25 billion, and adjusted earnings per share between $5.12 and $5.34.

Encompass Health Financial Statement Overview

Summary

Encompass Health demonstrates solid revenue growth and profitability, with improved leverage and strong return on equity. However, the decline in gross profit margin and negative free cash flow in TTM suggest areas for improvement in cost management and cash flow optimization.

Income Statement

Positive

Encompass Health shows a steady revenue growth rate of 2.84% in TTM, with a strong EBIT margin of 17.48% and EBITDA margin of 22.27%. However, the gross profit margin has decreased from previous years, indicating potential cost pressures. The net profit margin is stable at 9.22%, reflecting consistent profitability.

Balance Sheet

Positive

The company has significantly improved its debt-to-equity ratio to 0.12 in TTM, indicating reduced leverage and financial risk. Return on equity remains strong at 22.68%, showcasing effective use of equity. The equity ratio is stable, suggesting a balanced asset structure.

Cash Flow

Neutral

Operating cash flow remains positive, but free cash flow has turned negative in TTM, indicating potential cash management challenges. The operating cash flow to net income ratio is healthy at 0.63, but the negative free cash flow to net income ratio highlights the need for improved cash flow management.

Breakdown	TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Income Statement
Total Revenue	5.67B	5.37B	4.80B	4.35B	5.12B	4.64B
Gross Profit	2.53B	2.47B	933.50M	4.15B	4.91B	4.44B
EBITDA	1.31B	1.19B	1.02B	873.80M	879.00M	815.20M
Net Income	522.70M	455.70M	352.00M	271.00M	412.20M	284.20M
Balance Sheet
Total Assets	6.79B	6.53B	6.10B	5.64B	6.86B	6.45B
Cash, Cash Equivalents and Short-Term Investments	99.10M	85.40M	69.10M	21.80M	54.80M	224.00M
Total Debt	365.40M	2.71B	2.93B	2.99B	3.54B	3.54B
Total Liabilities	3.70B	3.69B	3.81B	3.77B	4.47B	4.44B
Stockholders Equity	3.03B	2.07B	1.65B	1.31B	1.91B	1.59B
Cash Flow
Free Cash Flow	439.20M	360.30M	267.70M	121.70M	164.60M	296.50M
Operating Cash Flow	1.11B	1.00B	850.80M	705.80M	715.80M	704.70M
Investing Cash Flow	-689.10M	-653.30M	-602.80M	-627.00M	-666.30M	-407.50M
Financing Cash Flow	-461.00M	-330.60M	-197.20M	-145.70M	-240.10M	-145.90M

Encompass Health Technical Analysis

Technical Analysis Sentiment

Positive

Last Price125.87

Price Trends

50DMA

119.71

Positive

100DMA

119.25

Positive

200DMA

109.17

Positive

Market Momentum

MACD

1.42

Positive

RSI

57.43

Neutral

STOCH

59.20

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For EHC, the sentiment is Positive. The current price of 125.87 is above the 20-day moving average (MA) of 125.25, above the 50-day MA of 119.71, and above the 200-day MA of 109.17, indicating a bullish trend. The MACD of 1.42 indicates Positive momentum. The RSI at 57.43 is Neutral, neither overbought nor oversold. The STOCH value of 59.20 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for EHC.

Encompass Health Risk Analysis

Encompass Health disclosed 31 risk factors in its most recent earnings report. Encompass Health reported the most risks in the "Legal & Regulatory" category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Encompass Health Peers Comparison

Overall Rating

UnderperformOutperform

Sector (51)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
UHS	78 Outperform	$12.78B	10.58	17.94%	0.40%	9.61%	39.65%
ENSG	76 Outperform	$9.95B	31.14	16.00%	0.14%	17.71%	41.83%
THC	75 Outperform	$17.85B	12.93	39.58%	―	-1.09%	-43.10%
EHC	73 Outperform	$12.68B	24.61	25.35%	0.54%	11.80%	30.02%
FMS	73 Outperform	$14.88B	20.84	3.69%	3.08%	1.11%	25.84%
DVA	61 Neutral	$9.35B	12.85	-226.24%	―	5.09%	7.85%
Sector *	51 Neutral	$7.86B	-0.30	-43.30%	2.27%	22.53%	-2.21%

* Healthcare Sector Average

Performance Comparison

EHC

Encompass Health

125.87

29.87

31.11%

DVA

DaVita

130.59

-33.34

-20.34%

FMS

Fresenius Medical Care

25.76

4.86

23.25%

THC

Tenet Healthcare

201.20

35.00

21.06%

ENSG

The Ensign Group

171.55

27.93

19.45%

UHS

Universal Health

201.07

-26.96

-11.82%

Encompass Health Corporate Events

Business Operations and StrategyFinancial Disclosures

Encompass Health Reports Strong Q2 2025 Financial Results

Positive

Aug 4, 2025

Encompass Health reported its financial results for the second quarter of 2025, showing a 12% increase in net operating revenue compared to the previous year, driven by a 7.2% growth in total discharges and a 4.2% increase in net patient revenue per discharge. The company also reported a 24.3% increase in cash flows from operating activities and a 17.2% rise in Adjusted EBITDA, reflecting improved revenue and expense leverage. Additionally, Encompass Health increased its full-year guidance for 2025, indicating strong operational performance and future growth prospects.

Business Operations and StrategyFinancial Disclosures

Encompass Health Highlights Financial Measures in New Book

Positive

Jun 25, 2025

Encompass Health has published its Investor Reference Book, highlighting the importance of non-GAAP financial measures like Adjusted EBITDA and adjusted free cash flow in assessing its financial performance and liquidity. These measures are crucial for understanding the company’s ability to service debt and make capital expenditures. The company emphasizes the significance of maintaining compliance with financial covenants in its credit agreements, as noncompliance could lead to financial restrictions. Encompass Health’s strategic focus on growth through new developments and acquisitions, alongside its financial strength, positions it well in the healthcare industry, despite potential risks such as regulatory changes and market pressures.

Glossary

BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.Date of analysis: Aug 19, 2025