Encompass Health (EHC) Stock Forecast & Price Target

Encompass Health Corp has demonstrated robust financial performance, with a notable 6.4% increase in salaries and wages per full-time equivalent (FTE) and a 7% EBITDA surprise in the fourth quarter, reflecting strong patient volumes and improved margin performance. The company's revenue grew by 1% above expectations, driven by a broad-based increase in service (SS) volumes, particularly in Medicare and Medicare Advantage segments, indicating a healthy demand for rehabilitation services. Additionally, the growth in SS volumes for the full year 2024 is projected to be at 6%, representing the highest annual growth rate observed outside of pandemic-related comparisons, thereby underlining a positive outlook for the company’s future financial trajectory.

Encompass Health Corp faces a negative outlook primarily due to declining cash flow, projected to decrease by approximately $50 million year-over-year to a range of $590-690 million, driven by increased capital expenditures related to capacity expansions and de novo investments. Additionally, EBITDA margin is expected to contract by 30 basis points year-over-year to 20.2%, influenced by ongoing labor pressures, elevated pre-opening costs, and implementation challenges linked to Oracle Fusion. The company also encounters significant risks, including regulatory challenges with Medicare and Medicaid, difficulties in construction and operational integration, and persistent wage inflation outpacing price growth, all of which could hinder future profitability and operational efficiency.