EHC Stock: More Double-Digit Upside Ahead

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Encompass Health Stock Gains From This Healthcare Trend

With an aging population, increasing expenditure on healthcare, and rising multiple chronic conditions, the U.S. post-acute care market is expected to gather more steam in the future. Post-acute care includes a range of services that are provided after an illness or injury.

Investors stand to reap handsome gains from this segment in the coming years and today’s stock is a case in point.

Encompass Health Corp (NYSE:EHC) is one of the nation’s largest providers of post-acute healthcare services. It offers facility-based and home-based patient care through its network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies.

The company has two business segments: inpatient rehabilitation and home health and hospice. The growing business in these segments has seen EHC stock rising over the past year.

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Its inpatient rehabilitation segment operates 127 inpatient rehabilitation hospitals. Out of these, 42 operate as joint ventures with acute care systems.

Encompass Health is the nation’s largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated and revenues, as well as the number of freestanding hospitals.

In the second business segment, the company assists and cares for patients in the comfort of their homes. As the fourth-largest provider of Medicare-certified skilled home health services, its home health and hospice segment includes 215 home health locations and 57 hospice locations.

The services provided include skilled nursing; physical, occupational, and speech therapy; and home health aide services.

Encompass Health is the leading provider of inpatient rehabilitation and home-based care, doing this in a cost-effective manner. Demographic trends such as population aging should increase long-term demand for facility-based and home-based post-acute care services.

As per the U.S. Census Bureau’s 2017 National Population Projections, all baby boomers will be older than 65 years by 2030. This marks an important turning point in U.S. history. (Source: “Older People projected to Outnumber Children for First Time in U.S. History,” United States Census Bureau, March 13, 2018.)

Encompass Health is well-positioned to gain from this trend, which bodes well for EHC stock in the future.

2018 was a significant year for the company as it underwent rebranding, changing its name from HealthSouth Corporation to Encompass Health Corp.

The company also announced strong second-quarter results in July. Both business segments reported impressive operating and financial results.

The adjusted earnings per share for the quarter went up by 39.4% to reach $0.99 per share. The net operating revenues increased by 10.5% to almost $1.1 billion. (Source: “Q2 2018 Earnings Release,” Encompass Health Corp, July 25, 2018.)

The revenue growth was driven by volume and pricing growth in the inpatient rehabilitation segment and volume growth in the home health and hospice segment. The company also increased its full-year guidance for 2018, given the strong performance and improved expectations.

CEO Mark Tarr said that the company was moving forward and emerging as the post-acute provider of choice with a proven record of delivering high-quality, cost-effective integrated care.

He further added that the management continued to see growth opportunities in both business segments as the demographic tailwind was driving increased demand for the services the company provided.

Improving business and execution has had a positive impact on Encompass Health stock, which has seen a phenomenal run during the last year, as the following EHC stock chart shows.

EHC stock has gained almost 70% over the past one year.

EHC-Stock-Graph

Chart courtesy of  StockCharts.com

Analyst Take

Encompass Health is the national leader in post-acute care and its position will likely continue gaining strength in the coming years. The company’s ability to adapt to changes, build strategic relationships, and provide high-quality, cost-effective care bodes well for the business and EHC stock in the evolving healthcare industry.

Given the rise in healthcare expenditure and the aging population, investors should consider Encompass Health stock for the long term.