Encompass Health Flexes Its Muscle: Margins Widen as Volumes Climb

Core Insights - Encompass Health Corporation (EHC) demonstrates that strategic expansion and operational discipline can yield significant results, driven by an aging population and increased demand for inpatient rehabilitation [1] Group 1: Company Performance - Encompass Health is expanding its hospital footprint and increasing bed capacity to accommodate rising patient volumes, with occupancy rates projected to rise from 72.1% in 2023 to 77.7% in the first half of 2025 [2][10] - Patient discharges have shown consistent growth, increasing by 8.7% in 2023, 8.3% in 2024, and 6.8% in the first half of 2025 [2][10] - Revenue per visit has surged by 27%, 40.8%, and 68% over the same periods, contributing to lower double-digit growth in net operating revenues [3] Group 2: Operational Efficiency - Investments in technology, improved staffing strategies, and stringent cost controls have led to a rise in adjusted net margin from 7.7% in 2023 to 9.7% in the first half of 2025 [4][10] - The company is well-positioned to maintain growth momentum, with the Zacks Consensus Estimate indicating an 18.3% year-over-year increase in earnings for 2025 [5] Group 3: Earnings Estimates - The Zacks Consensus Estimate for the current quarter (September 2025) is $1.20, with an expected year-over-year growth of 16.5% [6] - For the next quarter (December 2025), the estimate is $1.29, reflecting a 10.26% growth [6] - The current year estimate for 2025 stands at $5.24, with an 18.28% increase anticipated compared to the previous year [6] Group 4: Industry Comparison - Peers such as Universal Health Services, Inc. (UHS) and Tenet Healthcare Corporation (THC) are also experiencing revenue growth, with UHS revenues increasing by 6.6% in 2023 and 10.8% in 2024 [7][8] - Tenet Healthcare's revenues rose by 7.2% in 2023 and 0.6% in 2024, with a projected 2.4% increase in 2025 [8] Group 5: Stock Performance and Valuation - Encompass Health's shares have increased by 36.4% year-to-date, outperforming the industry growth of 10.1% [9] - The company trades at a forward price-to-earnings ratio of 22.55X, above the industry average of 19.59X, and holds a Value Score of B [12]