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Encompass Health (EHC) to Build Rehabilitation Hub in Illinois

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Encompass Health Corp. (EHC - Free Report) has announced its plans to build a 40-bed inpatient rehabilitation hospital in Shiloh, Illinois. This new unit will operate as a joint venture between the company and BJC HealthCare.

The company provides inpatient rehabilitation hospital services via its Inpatient Rehabilitation Segment, which accounted for 77% of the company’s third-quarter 2020 revenues.

The new hospital will care for patients recovering from debilitating illnesses and injuries including strokes and other neurological disorders, brain injuries, spinal cord injuries, amputations and complex orthopedic conditions.

The healthcare hub will provide physical, occupational and speech therapies as well as 24-hour nursing care for patients. It will bring the much-needed intensive rehabilitation services to Southwestern Illinois.  With this new center, the company will continue to deliver high-quality, cost-effective, integrated care across the healthcare continuum.

Encompass Health aims to meet demand for the facility-based and home-based post-acute care services in the markets where it is not currently present by constructing or acquiring hospitals and purchasing or opening home health and hospice agencies in those extremely fragmented industries.

The company continues to actively build hospitals. In the third quarter of 2020, it announced that it will build seven hospitals (six in Florida and one in Tennessee). It also added 89 beds in the first nine months of 2020 to its existing facilities.

Revenues at Encompass Health have been consistently increasing since 2010, driven by solid contributions from its inpatient rehabilitation plus home health and hospice segment. Its revenues witnessed a CAGR of 14.2% from 2014 to 2019.  Though the company’s top line earlier in the year took a hit from COVID-19-related decline in admissions, the situation is improving now and the company is witnessing a rise in patient admission volumes.

In its Inpatient rehabilitation segment, revenue per discharge has been positively impacted for a while now by the temporary suspension of sequestration and higher acuity patient mix resulting from the pandemic. The company witnessed growth in the acuity of its patients during the second quarter of 2020, which continued in the third quarter and this trend is expected to continue in the fourth quarter as well.

Though in the fourth quarter of 2020, the company expects limitations on elective procedures in certain markets to continue to affect volume growth but these volumes will see eventual recovery.

Management remains very confident about its long-term outlook for its inpatient rehabilitation hospitals and therefore has continued to expand its national footprint throughout this pandemic. It already opened three hospitals (from January to October 2020) and expects to open another one in Toledo, OH in mid-November. In addition, by this year-end, it expects to add approximately 120 beds to its existing hospitals with 89 of those already added. For 2021, the company announced plans to build eight hospitals and another eight scheduled for 2022.

Demographic trends, such as aging population aging should spur long-term demand for the services provided by the company. While it treats patients of all ages, most patients are 65 years old and above. The number of Medicare enrollees are expected to grow approximately 3% per year for the foreseeable future. This demographic trend will fuel demand for the company’s services and aid revenue growth.

Year to date, the stock has gained 3.3% compared with its industry’’s growth of 12.3%.  

Encompass Health carries a Zacks Rank #4 (Sell), currently.

Some better-ranked stocks in the some space are Chemed Corporation (CHE - Free Report) , DaVita Inc. (DVA - Free Report) and Option Care Heath Inc. (OPCH - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings of both Chemed and DaVita beat estimates in each of the trailing four quarters by 10.64% and 27.34%, respectively.

Option Care Heath’s bottom line beat estimates in  two of the last four quarters (meeting the mark in one and missing the same in the other), the average surprise being 35.42%.

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