RBC Capital has increased its price target for Encompass Health (EHC, Financial) from $110 to $125, maintaining an Outperform rating on the stock. The decision follows a robust performance by the company at the start of 2025, with first-quarter results exceeding expectations. This strong performance has also prompted an upward revision in the company's guidance.
A significant development for Encompass Health has been the shift in its payer mix. For the first time since 2022, the Medicare Fee-For-Service (FFS) volume has overtaken Medicare Advantage (MA), reflecting changes in the company's revenue streams. This transition marks a critical evolution in Encompass Health's operations, reinforcing RBC's positive outlook on its future prospects.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 11 analysts, the average target price for Encompass Health Corp (EHC, Financial) is $126.27 with a high estimate of $140.00 and a low estimate of $116.00. The average target implies an upside of 11.38% from the current price of $113.37. More detailed estimate data can be found on the Encompass Health Corp (EHC) Forecast page.
Based on the consensus recommendation from 12 brokerage firms, Encompass Health Corp's (EHC, Financial) average brokerage recommendation is currently 1.6, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Encompass Health Corp (EHC, Financial) in one year is $88.18, suggesting a downside of 22.22% from the current price of $113.37. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Encompass Health Corp (EHC) Summary page.
EHC Key Business Developments
Release Date: April 25, 2025
- Revenue: Increased 10.6% to $1.46 billion.
- Adjusted EBITDA: Increased 14.9% to $313.6 million.
- Total Discharge Growth: Increased 6.3%.
- Same Store Discharges: Grew 4.4%.
- Net Revenue per Discharge: Increased 3.9%.
- Q1 Adjusted Free Cash Flow: Increased 32.7% to $222.4 million.
- Contract Labor Costs: Declined $5 million to $28.6 million.
- Net Leverage: 2.1 times at quarter end.
- Unrestricted Cash: $95.8 million.
- 2025 Guidance - Net Operating Revenue: $5.85 billion to $5.925 billion.
- 2025 Guidance - Adjusted EBITDA: $1.185 billion to $1.220 billion.
- 2025 Guidance - Adjusted EPS: $4.85 to $5.10.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- First quarter revenues increased by 10.6% and adjusted EBITDA rose by 14.9%, indicating strong financial performance.
- Total discharge growth of 6.3% was achieved, with same-store discharges growing by 4.4%, showcasing robust operational performance.
- The company opened a new 40-bed joint venture hospital in Athens, Georgia, and plans to open six De Novos with a total of 300 beds, reflecting strategic expansion efforts.
- Encompass Health Corp (EHC, Financial) reported a decrease in premium labor costs, with contract labor costs down by $2.9 million from the previous year.
- The company increased its 2025 guidance for net operating revenue, adjusted EBITDA, and adjusted earnings per share, demonstrating confidence in future performance.
Negative Points
- Benefits expense per FTE increased by 14%, driven by an increase in the severity and frequency of group medical claims, which could impact future profitability.
- The company anticipates elevated group medical expense growth in Q2, which may affect financial results.
- Despite a decrease in contract labor costs, the company still faces challenges in maintaining labor efficiency and managing staffing levels.
- The company's exposure to regulatory developments and potential changes in Medicare and Medicaid reimbursement rates pose risks to future financial performance.
- The high occupancy rates and demand for inpatient rehabilitation services may strain existing resources and require significant capital investment for expansion.
