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EHC

Encompass Health NYSE:EHC Stock Report

Last Price

US$52.87

Market Cap

US$5.3b

7D

0%

1Y

-32.2%

Updated

11 Aug, 2022

Data

Company Financials +
EHC fundamental analysis
Snowflake Score
Valuation3/6
Future Growth1/6
Past Performance2/6
Financial Health4/6
Dividends2/6

EHC Stock Overview

Encompass Health Corporation provides facility-based and home-based post-acute healthcare services in the United States.

Encompass Health Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Encompass Health
Historical stock prices
Current Share PriceUS$52.87
52 Week HighUS$81.45
52 Week LowUS$44.33
Beta0.91
1 Month Change9.69%
3 Month Change-17.51%
1 Year Change-32.24%
3 Year Change-12.67%
5 Year Change21.12%
Change since IPO259.97%

Recent News & Updates

Aug 10

Encompass Health Encompasses Quality, Defensibility After Q2 FY22

Encompass Health posted Q2 FY22 earnings last week with downsides relative to consensus at the top and bottom line. Despite this, FCF remained buoyant and the company did recognize growth in most segments. With the sector rotation favouring healthcare of late, EHC has caught a bid but its covariance structure has shifted downwards. We rate EHC a buy and value the company at $84.75 apiece. Investment summary With the latest sector rotation favouring healthcare names, we look to Encompass Health Corporation (ASX:EHC) and note it displays many of the characteristics that are conducive to further upside in the future investment landscape. This is a high probability name that is executing well on its growth strategy, all whilst retaining an annualized 10.2% return on its invested capital and adequate liquidity. With profitability trends a standout feature, along side the defensible business model, we rate EHC a buy on a $84.75 valuation, seeking a return objective of 64% to that level. Exhibit 1. EHC 6-month price action, ichimoku cloud overlay. The price line and the lag line (in blue) have each punched up through cloud support, whilst on balance volume signals the longer-term trend is in situ. This price chart is bullish by estimate. Data: Updata Q2 earnings provide insights for FY22 exit momentum Second-quarter earnings came in strong although printed below consensus estimates from top-bottom. Total sales were $1.33 billion, constituting ~310bps YoY growth. Of this, the inpatient rehab franchise ("IRF") business contributed ~80% or $1.06 billion to the top, bringing this to $196 million in quarterly EBITDA. As seen in Exhibit 2, income derived from each segment has been seasonal with growth trends normalizing to the single digits in recent quarters. Exhibit 2. Segment-specific income mix, trends normalizing back to range Data: HB Insights, EHC SEC Filings It recorded non-GAAP EBITDA as $240 million, and explains the adjustment is necessary to gauge the company's liquidity profile. Exhibit 3 illustrates the reconciliation of net income to adjusted EBITDA. On examination we agree with most of the adjustment except we'd subtract stock-based compensation of $8.8 million and the change in fair market value of its equity positions at $3.2 million. As such, we've adjusted EHC's EBITDA to read $228.2 million. Exhibit 3. Reconciliation of net income to adjusted EBITDA – the variance between reported and adjusted EBITDA is ~22% Data: HB Insights; EHC 10-Q; Q2 FY22 It brought this down to pre-tax operating income of $95 million, down from $181 million the year prior and net income of $71 million. The change YoY stemmed from higher operating costs at the SG&A line, and a 44% increase in interest expense. As such, it converted FCF at a margin of 12.5% to ~$177 million, itself up ~21% year on year. Moreover, Q2 contract labour (including sign on and shift bonuses) came to ~$57 million, down ~$7 million sequentially, with the mix split ~62% and ~38% to contract labour and sign ons/bonuses, respectively. Impressively, amid the current labour market, EHC actually reduced contract labour full-time equivalents ("FTEs") 20% down from a peak of ~750 in March to 597 by June. A 130bps increase in revenue per discharge complimented; however, this was offset by continued cost-challenges due to "staffing challenges" per the earnings call. Despite this, it saw some leverage from Q2 agency rates for each FTE, declining from $240,500 down to $222,000 sequentially. These are good trends to see because agency rates peaked for the company in February at $243,000, and there was uncertainty on the ability of this to level back to range. Alas, by June, overall agency rates had reduced more than 40% to ~$209 million. With the spike in sales and operating income the company's return on investment curled up to an above-average 2.69% for the quarter. Here we examined how much NOPAT EHC generates from the previous year's invested capital, and determined this as the return on investment ("ROIC"). As seen in Exhibit 4, 4-year ROIC normalizes to 2.55% (10.2% annualized), well above the company's annual WACC of 6.1%. This adds a heavily bullish tilt to the investment debate. These are immovable, defensible and cash-rich investments on EHC's books. It therefore ensures the company can continue compounding cash at an average ~10% per year – attractive features in the forward looking climate. Exhibit 4. ROIC trends curling back to the upside along with NOPAT conversion Image: HB Insights, EHC SEC Filings Guidance affirmed from top-bottom Q2 earnings came in line with internal expectations, management says, prompting it to reaffirm FY22 guidance. It has increased the provisions allocated to bad debt from 200bps, up to a range of 200–220bps. Management also projects $280 million–$380 million in FCF from the IRF segment. Noteworthy, however, is that YTD FCF from the segment is already at $290 million, and this points to a higher CAPEX schedule in H2 FY22, in line with seasonal trends. It had released a separate set of accounts and forward-looking guidance back in June, following the spinoff of Enhabit. It now released accounts forecasting EHC revenue of $4.25–$4.3 billion, with adjusted EBITDA of $820–840 million and non-GAAP EPS of $2.77–2.91. It also declared a $0.15cps quarterly dividend, although this is negligible in our analysis as the forward yield is 0.3% on this. Exhibit 5. EHC quarterly operating income trends Data: HB Insights, EHC SEC Filings Additional takeouts of consideration Same-store RN hires came in more than 135% higher YoY to 276, thereby stretching sign on and shift bonuses higher throughout the quarter as well. As the company continues hiring more RNs, whilst industry turnover continues to be high, plus given the current state of the US labour market, EHC envisions both of these costs to remain buoyant over the remainder of FY22. As a result, the company looks to be shifting away from contract labour towards this segment, and forecasts agency rates to continue declining in unison with last quarter. However, vision is murky here, because there's still no clarity on the Covid-19 situation, plus, there are ongoing staff shortages for a myriad of other reasons too (sick days, resignations, etc.) meaning agency rates might stay higher longer than EHC predicts. Aside from that, CMS issued the FY23 final IRF rules in the final week of July. CMS established a ~4% update for the final rule in the IRF basket. EHC will therefore recognize a 4% in Medicare payments from October this year, when the new rule takes effect. However, the key point is that the 400bps increase isn't enough to overcome its surging operating expenses, and increasing interest expense. It has primary outstanding variable rate debt of $170 million and ~$398 million under its term loan A facility. The spread of its issued notes is shown in Exhibit 6, below, with coupons ranging from 4.6%–5.75%, and tenor's from FY23–FY30. Sensitivity analysis on the company's credit structure illustrates that 1% increase in commercial interest rates translates to an incremental negative cash flow of ~$3 million for EHC. The same is true to the downside.

Jul 31

Encompass Health Q2 2022 Earnings Preview

Encompass Health (NYSE:EHC) is scheduled to announce Q2 earnings results on Monday, August 1st, after market close. The consensus EPS Estimate is $0.96 (-17.9% Y/Y) and the consensus Revenue Estimate is $1.34B (+3.9% Y/Y). Over the last 2 years, EHC has beaten EPS estimates 63% of the time and has beaten revenue estimates 63% of the time. Over the last 3 months, EPS estimates have seen 2 upward revisions and 9 downward. Revenue estimates have seen 3 upward revisions and 7 downward.

Shareholder Returns

EHCUS HealthcareUS Market
7D0%1.0%1.3%
1Y-32.2%15.6%-11.7%

Return vs Industry: EHC underperformed the US Healthcare industry which returned 15.8% over the past year.

Return vs Market: EHC underperformed the US Market which returned -11.6% over the past year.

Price Volatility

Is EHC's price volatile compared to industry and market?
EHC volatility
EHC Average Weekly Movement6.5%
Healthcare Industry Average Movement8.9%
Market Average Movement7.8%
10% most volatile stocks in US Market16.9%
10% least volatile stocks in US Market3.2%

Stable Share Price: EHC is not significantly more volatile than the rest of US stocks over the past 3 months, typically moving +/- 7% a week.

Volatility Over Time: EHC's weekly volatility (7%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
198329,294Mark Tarrhttps://www.encompasshealth.com

Encompass Health Corporation provides facility-based and home-based post-acute healthcare services in the United States. The company operates in two segments, Inpatient Rehabilitation, and Home Health and Hospice. The Inpatient Rehabilitation segment provides specialized rehabilitative treatment on an inpatient and outpatient basis to patients who are recovering from conditions, such as stroke and other neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, complex orthopedic conditions, and amputations.

Encompass Health Fundamentals Summary

How do Encompass Health's earnings and revenue compare to its market cap?
EHC fundamental statistics
Market CapUS$5.28b
Earnings (TTM)US$326.60m
Revenue (TTM)US$5.27b

16.2x

P/E Ratio

1.0x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
EHC income statement (TTM)
RevenueUS$5.27b
Cost of RevenueUS$3.26b
Gross ProfitUS$2.01b
Other ExpensesUS$1.68b
EarningsUS$326.60m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)3.27
Gross Margin38.17%
Net Profit Margin6.20%
Debt/Equity Ratio114.2%

How did EHC perform over the long term?

See historical performance and comparison

Dividends

1.1%

Current Dividend Yield

34%

Payout Ratio

Does EHC pay a reliable dividends?

See EHC dividend history and benchmarks
When do you need to buy EHC by to receive an upcoming dividend?
Encompass Health dividend dates
Ex Dividend DateSep 30 2022
Dividend Pay DateOct 17 2022
Days until Ex dividend48 days
Days until Dividend pay date65 days

Does EHC pay a reliable dividends?

See EHC dividend history and benchmarks
We’ve recently updated our valuation analysis.

Valuation

Is EHC undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

3/6

Valuation Score 3/6

  • Price-To-Earnings vs Peers

  • Price-To-Earnings vs Industry

  • Price-To-Earnings vs Fair Ratio

  • Below Fair Value

  • Significantly Below Fair Value

  • Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for EHC?

Other financial metrics that can be useful for relative valuation.

EHC key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue1.7x
Enterprise Value/EBITDA9.2x
PEG Ratio2x

Price to Earnings Ratio vs Peers

How does EHC's PE Ratio compare to its peers?

EHC PE Ratio vs Peers
The above table shows the PE ratio for EHC vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
CompanyPEEstimated GrowthMarket Cap
Peer Average14.2x
ENSG Ensign Group
23.1x12.5%US$4.7b
THC Tenet Healthcare
8x21.2%US$7.0b
SEM Select Medical Holdings
15.1x25.7%US$3.4b
UHS Universal Health Services
10.5x4.4%US$8.1b
EHC Encompass Health
16.2x7.9%US$5.3b

Price-To-Earnings vs Peers: EHC is expensive based on its Price-To-Earnings Ratio (16.2x) compared to the peer average (14.2x).


Price to Earnings Ratio vs Industry

How does EHC's PE Ratio compare vs other companies in the US Healthcare Industry?

Price-To-Earnings vs Industry: EHC is good value based on its Price-To-Earnings Ratio (16.2x) compared to the US Healthcare industry average (19.5x)


Price to Earnings Ratio vs Fair Ratio

What is EHC's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

EHC PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio16.2x
Fair PE Ratio25.6x

Price-To-Earnings vs Fair Ratio: EHC is good value based on its Price-To-Earnings Ratio (16.2x) compared to the estimated Fair Price-To-Earnings Ratio (25.6x).


Share Price vs Fair Value

What is the Fair Price of EHC when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: EHC ($52.87) is trading above our estimate of fair value ($41.02)

Significantly Below Fair Value: EHC is trading above our estimate of fair value.


Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is more than 20% higher than the current share price and analysts are within a statistically confident range of agreement.


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Future Growth

How is Encompass Health forecast to perform in the next 1 to 3 years based on estimates from 9 analysts?

Future Growth Score

1/6

Future Growth Score 1/6

  • Earnings vs Savings Rate

  • Earnings vs Market

  • High Growth Earnings

  • Revenue vs Market

  • High Growth Revenue

  • Future ROE


7.9%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts


Analyst Future Growth Forecasts

Earnings vs Savings Rate: EHC's forecast earnings growth (7.9% per year) is above the savings rate (1.9%).

Earnings vs Market: EHC's earnings (7.9% per year) are forecast to grow slower than the US market (14.5% per year).

High Growth Earnings: EHC's earnings are forecast to grow, but not significantly.

Revenue vs Market: EHC's revenue (1.8% per year) is forecast to grow slower than the US market (8% per year).

High Growth Revenue: EHC's revenue (1.8% per year) is forecast to grow slower than 20% per year.


Earnings per Share Growth Forecasts


Future Return on Equity

Future ROE: Insufficient data to determine if EHC's Return on Equity is forecast to be high in 3 years time


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Past Performance

How has Encompass Health performed over the past 5 years?

Past Performance Score

2/6

Past Performance Score 2/6

  • Quality Earnings

  • Growing Profit Margin

  • Earnings Trend

  • Accelerating Growth

  • Earnings vs Industry

  • High ROE


6.3%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: EHC has high quality earnings.

Growing Profit Margin: EHC's current net profit margins (6.2%) are lower than last year (7.8%).


Past Earnings Growth Analysis

Earnings Trend: EHC's earnings have grown by 6.3% per year over the past 5 years.

Accelerating Growth: EHC's has had negative earnings growth over the past year, so it can't be compared to its 5-year average.

Earnings vs Industry: EHC had negative earnings growth (-14.7%) over the past year, making it difficult to compare to the Healthcare industry average (8.1%).


Return on Equity

High ROE: EHC's Return on Equity (16.7%) is considered low.


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Financial Health

How is Encompass Health's financial position?

Financial Health Score

4/6

Financial Health Score 4/6

  • Short Term Liabilities

  • Long Term Liabilities

  • Debt Level

  • Reducing Debt

  • Debt Coverage

  • Interest Coverage

Financial Position Analysis

Short Term Liabilities: EHC's short term assets ($1.0B) exceed its short term liabilities ($835.4M).

Long Term Liabilities: EHC's short term assets ($1.0B) do not cover its long term liabilities ($3.7B).


Debt to Equity History and Analysis

Debt Level: EHC's net debt to equity ratio (106.9%) is considered high.

Reducing Debt: EHC's debt to equity ratio has reduced from 173% to 114.2% over the past 5 years.

Debt Coverage: EHC's debt is well covered by operating cash flow (26.3%).

Interest Coverage: EHC's interest payments on its debt are well covered by EBIT (4x coverage).


Balance Sheet


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Dividend

What is Encompass Health current dividend yield, its reliability and sustainability?

Dividend Score

2/6

Dividend Score 2/6

  • Notable Dividend

  • High Dividend

  • Stable Dividend

  • Growing Dividend

  • Earnings Coverage

  • Cash Flow Coverage


1.13%

Current Dividend Yield

Upcoming Dividend Payment

TodayAug 12 2022Ex Dividend DateSep 30 2022Dividend Pay DateOct 17 202217 days from Ex DividendBuy in the next 48 days to receive the upcoming dividend

Dividend Yield vs Market

Notable Dividend: EHC's dividend (1.13%) isn’t notable compared to the bottom 25% of dividend payers in the US market (1.5%).

High Dividend: EHC's dividend (1.13%) is low compared to the top 25% of dividend payers in the US market (4.05%).


Stability and Growth of Payments

Stable Dividend: EHC has been paying a dividend for less than 10 years and during this time payments have been volatile.

Growing Dividend: EHC has only been paying a dividend for 9 years, and since then payments have fallen.


Earnings Payout to Shareholders

Earnings Coverage: With its reasonably low payout ratio (34%), EHC's dividend payments are well covered by earnings.


Cash Payout to Shareholders

Cash Flow Coverage: With its reasonably low cash payout ratio (29.7%), EHC's dividend payments are well covered by cash flows.


Discover strong dividend paying companies

Management

How experienced are the management team and are they aligned to shareholders interests?

7.1yrs

Average management tenure


CEO

Mark Tarr (60 yo)

5.67yrs

Tenure

US$8,252,128

Compensation

Mr. Mark J. Tarr serves as President, Chief Executive Officer and Director of Encompass Health Corp. since December 29, 2016. He serves as Director at Birmingham Business Alliance. Mr. Tarr serves as the P...


CEO Compensation Analysis

Compensation vs Market: Mark's total compensation ($USD8.25M) is about average for companies of similar size in the US market ($USD8.26M).

Compensation vs Earnings: Mark's compensation has been consistent with company performance over the past year.


Leadership Team

Experienced Management: EHC's management team is seasoned and experienced (7.1 years average tenure).


Board Members

Experienced Board: EHC's board of directors are considered experienced (4.7 years average tenure).


Ownership

Who are the major shareholders and have insiders been buying or selling?


Insider Trading Volume

Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.


Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.


Top Shareholders

Company Information

Encompass Health Corporation's employee growth, exchange listings and data sources


Key Information

  • Name: Encompass Health Corporation
  • Ticker: EHC
  • Exchange: NYSE
  • Founded: 1983
  • Industry: Health Care Facilities
  • Sector: Healthcare
  • Implied Market Cap: US$5.275b
  • Shares outstanding: 99.78m
  • Website: https://www.encompasshealth.com

Number of Employees


Location

  • Encompass Health Corporation
  • 9001 Liberty Parkway
  • Birmingham
  • Alabama
  • 35242
  • United States

Listings


Company Analysis and Financial Data Status

All financial data provided by Standard & Poor's Capital IQ.
DataLast Updated (UTC time)
Company Analysis2022/08/11 00:00
End of Day Share Price2022/08/11 00:00
Earnings2022/06/30
Annual Earnings2021/12/31


Unless specified all financial data is based on a yearly period but updated quarterly. This is known as Trailing Twelve Month (TTM) or Last Twelve Month (LTM) Data. Learn more here.