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Zacks Industry Outlook Highlights DaVita, Encompass Health, Option Care Health and The Pennant Group

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For Immediate Release

Chicago, IL – May 9, 2024 – Today, Zacks Equity Research discusses DaVita Inc. (DVA - Free Report) , Encompass Health Corp. (EHC - Free Report) , Option Care Health, Inc. (OPCH - Free Report) and The Pennant Group, Inc. (PNTG - Free Report) .

Industry: Outpatient Healthcare


In the post-pandemic period, the Zacks Medical - Outpatient and Home Healthcare industry has been witnessing a rapid shift toward digital healthcare treatment. In the past few years, there has been a significant rise in demand for telemedicine-focused online medical and artificial intelligence (AI)-powered technology services.

Post-pandemic, many healthcare companies that were traditionally not technology-based transformed to survive in the market. Per a report by Precedence Research, the global home healthcare market was valued at $373.56 billion in 2023 and is anticipated to reach $1,469.92 billion by 2033 at a CAGR of approximately 14.8%. Another factor prompting these MedTech players to embrace digital healthcare is the skyrocketing healthcare costs.

On a positive note, rising dependence on telehealth and AI is likely to help the industry thrive in the near term. DaVita Inc., Encompass Health Corp., Option Care Health, Inc. and The Pennant Group, Inc. are likely to gain from the prospects.

Industry Description

The industry comprises companies that offer ambulatory care in an outpatient setting or at home. They use advanced medical technologies for diagnosis, treatment and rehabilitation services. The players include operators of HMO medical centers, kidney dialysis centers and other outpatient care centers. After navigating a tough pandemic era, the payers and providers have been seeing steady growth on the back of innovation in services.

This buoys optimism about prospects over the next few years, although persistent inflation in consumer prices could dent the outlook. The potential for scaling up innovation, prompted by the pandemic’s pressure on the healthcare system, is an added plus. Also, the acceleration of value-based care models and the increasing application of technology across the healthcare industry are likely to continue in the long run.

Major Trends Shaping the Future of the Outpatient and Home Healthcare Industry

Cost Effectiveness: The primary advantage of outpatient clinics is cost-effectiveness. Outpatient medical care clinics do not retain patients for long hours (overnight) or charge exorbitantly. Modern-day outpatient clinics offer a broad spectrum of treatment and diagnostic options and even minor surgical procedures. Financial incentives like health plans and government program payment policies supporting services in lower-cost care settings have also been driving outpatient care.

Additionally, with value-based models of care steadily emerging as the future of healthcare, the shift from fee-for-service (FFS) to alternative payment models (APM) is an ongoing parallel trend. FFS will be crucial to care organizations as a benchmark through which providers can assess APM.

AI’s Dominant Role: AI has been a roaring success in healthcare. Outpatient companies prefer bots and automated techniques for managing health information. With the help of AI, hospitals have been achieving better outcomes, with patients receiving more efficient and personalized care. The outpatient industry has been generating huge profits from electronic health records (EHRs) and ePrescriptions.

Virtual Healthcare Assistants: Virtual assistants and chatbots can help patients by answering questions about their care and connecting them with the information they need to make more informed decisions about their care. Increasingly, they will interface with EHR systems and be used to book and schedule appointments. They can also help patients stay compliant by reminding them to take medications or exercise.

Dependence on Telehealth: The pandemic has accelerated healthcare innovation. Home healthcare can gain from the benefits provided by Medicare (and several other payers) that comprise a broad range of services that can be delivered in a patient’s home, including post-operative and chronic wound care. Home healthcare has seen a surge in the utilization of the telehealth platform in response to the pandemic. With a rise in the elderly population and the increasing costs of in-person health care, the demand for home-based health care is on the rise. People with chronic illnesses and disabilities also require home-based care.

Currently, Internet of Things (IoT)-powered virtual hospitals and telemedicine are quite popular. This trend includes both telemedicine and wearable devices connected to the global network, known as the IoT. By using connected devices to remotely monitor patients and provide communication channels for healthcare professionals, more elements of care can be delivered remotely.

Staffing Shortages: The U.S. healthcare industry has been experiencing a severe shortage of workers at every level. Among support personnel, there is a laxity of home health aides. The increasing international migration of health workers may aggravate health workforce shortfalls, especially in low-income and lower-middle-income countries. Another reason for the acute staffing shortage is high burnout due to physical, emotional and mental exhaustion. Thus, these overworked employees are leaving the profession at an accelerating rate.

Healthcare staffing shortages lead to poor patient outcomes that can include hospital-acquired infections, patient falls and increased probabilities of death. With a lesser number of staff available in hospital settings for patient care, there has been a gradual shift toward home healthcare for non-critical patients who can be monitored remotely.

Zacks Industry Rank

The Zacks Medical - Outpatient and Home Healthcare industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #81, which places it in the top 32% of nearly 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few outpatient home health stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry's Stock Market Performance

The industry has outperformed its sector but underperformed the Zacks S&P 500 Composite in the past year.

The industry has gained 18.1% over this period compared with the S&P 500’s rise of 26.5% and the broader sector’s rise of 1.5%.

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E), commonly used for valuing medical stocks, the industry is currently trading at 20.9X compared with the S&P 500’s 20.8X and the sector’s 23.3X.

Over the last five years, the industry has traded as high as 25.8X and as low as 17X, with the median being at 20.3X.

4 Outpatient and Home Healthcare Stocks to Add Right Now

DaVita: DaVita, a renowned global comprehensive kidney care provider, reported its first-quarter 2024 results this month. The company registered an uptick in its overall top-line and bottom-line performances. Strength in both dialysis patient service and Other revenues during the period was also recorded. The opening of dialysis centers within the United States and acquiring centers overseas was also seen.

DVA flaunts a Zacks Rank #1 (Strong Buy).

For this Denver, CO-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 3.9%. The same for earnings indicates an increase of 12%.

The company’s return on equity (ROE) of 68.5% compares favorably with the industry’s 7.2%.

Option Care Health: Option Care Health is a renowned independent provider of home and alternate site infusion services. Last month, the company announced its first-quarter 2024 results, where it registered a solid uptick in its net revenues.

OPCH sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

For this Bannockburn, IL-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 10.7%.

The company’s ROE of 18.9% compares favorably with the industry’s 7.2%.

Encompass Health: Encompass Health, the owner and operator of inpatient rehabilitation hospitals in the United States, reported its first-quarter 2024 results last month. The company saw a robust uptick in its overall top line, primarily driven by discharge growth (including robust same-store growth). The same month, Encompass Health announced preliminary plans to build a freestanding, 50-bed inpatient rehabilitation hospital in San Antonio. This month, the company announced the opening of Encompass Health Rehabilitation Hospital of Kissimmee, a 50-bed inpatient rehabilitation hospital.

EHC currently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Encompass Health’s 2024 earnings suggests growth of 10.3%. The same for earnings indicates an increase of 11.5%.

The company’s ROE of 18% compares favorably with the industry’s 7.2%.

The Pennant Group: It is the parent company of the Pennant group of affiliated home health, hospice and senior living companies. This month, The Pennant Group reported its first-quarter 2024 results, where it witnessed solid improvement in its overall top line. Its Home Health and Hospice Services segment recorded a robust uptick in revenues. The company also recorded strength in its total home health admissions and total Medicare home health admissions.

The uptick in total hospice admissions, the Senior Living Services segment and the Same store Senior Living Services segment in the first quarter was also impressive. The Pennant Group also acquired the operations of Veranda Senior Living at Paramount (located in Meridian, ID) and South Davis Home Health and South Davis Hospice (serving Davis County, UT) this month. PNTG carries a Zacks Rank of 2.

For this Eagle, ID-based company, the Zacks Consensus Estimate for 2024 revenues suggests growth of 11.5%. The same for earnings indicates an increase of 19.2%.

The company’s ROE of 13.4% compares favorably with the industry’s 7.2%.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit  for information about the performance numbers displayed in this press release.



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