Encompass Health (EHC) Stock Forecast & Price Target

Encompass Health Corp has demonstrated strong financial performance, highlighted by a 1% revenue beat driven by solid same-store volume growth of 5.8% and a 4.2% increase in revenue per discharge, reflecting strong demand for inpatient rehabilitation services. The company is experiencing broad-based growth in its patient volume, particularly in Medicare and Medicare Advantage segments, with full-year estimates projecting a notable 6% increase, indicating robust operational momentum outside of COVID-19 impacts. Additionally, a significant EBITDA growth of 14% year-over-year in the fourth quarter, supported by positive operating leverage, reinforces the company's favorable financial trajectory and operational efficiency.

Encompass Health Corporation is facing a decline in cash flow, with projections suggesting a decrease of approximately $50 million year-over-year, primarily due to increased capital expenditures related to ongoing capacity expansions and de novo spending. The company’s guidance indicates a contraction of EBITDA margin, which is expected to fall 30 basis points year-over-year to 20.2%, exacerbated by labor pressures, higher pre-opening costs, and challenges associated with the implementation of Oracle Fusion. Additional risks, such as regulatory challenges with Medicare and Medicaid, operational difficulties in new construction, staffing shortages, and wage inflation outpacing price growth, contribute to the negative outlook for the stock.