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Encompass Health (EHC) to Spin Off Unit to Streamline Business

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Encompass Health Corporation (EHC - Free Report) recently announced that it is exploring strategic alternatives for its home health and hospice business.

Though the share price increased following this news, it declined in the last two trading days due to the drop in the broader markets.

The company is mulling over its options via various alternatives, such as full or partial separation of the home health and hospice business from its parent company through an initial public offering, spin-off, merger, sale or other forms of transaction.

Home Health and Hospice business accounted for nearly 24% of the company’s 2019 revenues.  The company’s home health business is the nation’s fourth largest provider of Medicare-certified skilled home health services in terms of revenues. Its hospice business is the nation’s eleventh largest provider of Medicare-certified hospice services in terms of revenues. As of Sep 30, 2020, the company provided home health services at 242 locations and hospice services in 83 locations across 31 states with concentrations in the Southeast and Texas.

The company acquired a significant portion of its home health and hospice business when it purchased 83.3% shares of EHHI Holdings, Inc. on Dec 31, 2014.  As of Feb 19, 2020, it owned 98.8% of EHHI. Over these years, a number of acquisitions have been made in this business. Also, revenues have grown consistently in the past many years. However, in the first nine months of 2020, revenues from the company’s health and hospice business slid 0.9%

With the spin-off of this unit, the company plans to focus on and grow its core business that is its inpatient rehabilitation. In January this year, it acquired 68% of the operations of a 13-bed inpatient rehabilitation unit in Denver, CO through a joint venture with Portercare Adventist Health System. In May, the company acquired 51% of the operations of a 45-bed inpatient rehabilitation unit in Dayton, OH via a joint venture with Premier Health Partners

The company’s inpatient rehabilitation business has been performing strongly for a while now. It is on track to witness consistent growth on the back of its planned bed additions at a number of existing hospitals, acquisitions and construction of new hospitals. The inpatient rehabilitation industry remains highly fragmented, lending the company an edge to tap this market.

In six months’ time, shares of Encompass Health have surged 30% compared with its  industry ’s growth of 24.4%. 



The stock carries a Zacks Rank #4 (Sell), currently.

Better-ranked stocks in the same space include Chemed Corporation (CHE - Free Report) , DaVita Inc. (DVA - Free Report) and Option Care Health, Inc. (OPCH - Free Report) , each carrying a Zacks Rank #2 (Buy), presently.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Earnings of Chemed, DaVita and Option Care beat estimates in the last reported quarter by 21.8%, 20.81% and 125%, respectively.

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