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Encompass Health (EHC) Expands Inpatient Rehab Business

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Encompass Health Corp. (EHC - Free Report) is making concerted efforts to grow its inpatient rehabilitation business. To this end, it recently announced the opening of Encompass Health Rehabilitation Hospital of Cumming, a 50-bed inpatient rehabilitation hub.

Encompass Health is aiming to tap the aging demographic, which drives demand for its inpatient rehabilitation services. In 2020, the company opened four hospitals and expanded its existing hospitals by 117 beds

It plans to open six additional hospitals in 2021 and add above 100 more beds to its existing portfolio of hospitals. For 2022, the company plans to open at least 12 hospitals. With a strong development pipeline, it is expected to come up with more growth-related announcements throughout 2021. The company’s strategy is to buildsix to 10 hospitals every year.

The inpatient rehabilitation industry remains highly fragmented, which gives the company an edge to expand its share in  this market. Other players dominating the US post-acute care market are DaVita Inc. (DVA - Free Report) , Amedisys, Inc. (AMED - Free Report) and LHC Group, Inc. (LHCG - Free Report) among others.

In the first quarter, the Inpatient Rehabilitation revenues increased 5.6% while adjusted EBITDA improved 9%. Both increases were primarily driven by pricing. Growth in revenue per discharge primarily resulted from a higher acuity patient mix, a rise in reimbursement rates and the suspension of sequestrations.The company expects volume growth in the coming quarters as more elective procedures are performed.

Based on strong first-quarter 2021 results and the extension of Medicare sequestration suspension through 2021 end, the company raised its full-year revenue and earnings guidance. For the full year, net operating revenues are now projected to be $5.06-$5.23 billion, up from the prior outlook of $5-$5.17 billion. The midpoint of the newly provided view suggests growth of 10.8% from the 2020-end reported level.

Adjusted earnings per share from continuing operations are anticipated to be $3.94-$4.16 for 2021, up from the past projection of $3.31-$3.53. The midpoint of the latest prediction indicates a surge of 40.1% from the 2020-end reported figure.

Encompass Health’s favorable cash flow generation will back up its growth initiatives. In 2020, the company’s adjusted free cash flow grew 12.3%. It expects the same to see a CAGR of 5-7% from 2020 to 2025.

The company’s optimistic forecast, solid cash flows and a growing business make it a perfect stock to bet on. Also, from a valuation perspective, it is undervalued  Its P/EBITDA (TTM) of 9.89X is lower than the industry’s average of 16.3X. The stock currently has a Zacks Rank #2 (Buy) and an impressive  VGM Score of B. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past month, the stock has slid 5.8% compared with the industry’s decline of 0.11%. This fall gives a good entry point for investors to buy the stock now and earn good returns when the share price rises.

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