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Encompass Health (EHC) to Expand Inpatient Rehabilitation Unit

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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 plans to build a freestanding, 40-bed inpatient rehabilitation hospital in Fitchburg, WI The hospital, which is expected to be named Encompass Health Rehabilitation Hospital of Fitchburg, will be located at the southeast corner of South Fish Hatchery Road and Nobel Drive. It is expected to begin serving patients in 2023.

This move is in line with the company’s aim to tap the aging demographic, which drives demand for its inpatient rehabilitation services. In 2020, the company opened four hospitals and added 117 beds to the existing chain.

It plans to open six additional hospitals in 2021 and add more than 100 beds to the existing line. For 2022, the company aims to launch at least 12 hospitals. With a strong pipeline of developments, it is expected to come up with more growth-related announcements throughout 2021. The company’s strategy is to float six to 10 new hospitals every year.

The inpatient rehabilitation industry remains highly fragmented, which gives the company an edge to penetrate 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.

The company expects volume growth in the coming quarters as more elective procedures are now performed. Backed by strong first-quarter 2021 results and the extension of Medicare sequestration suspension until the end of 2021, the company raised full-year revenue and earnings guidance.

For 2021, net operating revenues are now projected to be $5.06-$5.23 billion, higher than the prior guidance of $5-$5.17 billion. The midpoint of the newly-provided view suggests growth of 10.8% from the 2020 reported level.

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

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

Its optimistic predictions, solid cash flows and a growing business make it a perfect stock to be retained in the investment portfolio.  

Year to date, the stock has dipped 1% compared with the industry’s decline of 9%.


Zacks Investment ResearchImage Source: Zacks Investment Research

The stock carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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