Encompass Health (EHC): Assessing Valuation as Investor Focus Builds Before Earnings and Expansion Updates

Encompass Health (NYSE:EHC) is on investors’ radar this week as the company prepares to release earnings. After topping revenue and earnings guidance last quarter, further growth is projected. This has added interest to recent expansion moves.

See our latest analysis for Encompass Health.

The past year has seen Encompass Health’s share price accelerate, climbing sharply with a 36.8% year-to-date share price return. The three-year total shareholder return stands at an impressive 138%. Recent initiatives, such as expanding their rehabilitation network in Florida and completing a new tranche of share buybacks, have kept investor sentiment positive and the company’s momentum firmly in place.

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With shares already logging double-digit gains this year and trading within 10% of analysts’ price targets, investors may wonder if the market has already accounted for Encompass Health’s future growth or if a buying opportunity remains.

Most Popular Narrative: 9.7% Undervalued

The current fair value, according to the most widely followed narrative, sits at $139.08. This represents a premium compared to the last close of $125.63. This gap reflects confidence in the company’s ability to deliver on its growth blueprint and underscores the drivers propelling its expansion and returns.

The surge in the 65-plus population and persistent undersupply of inpatient rehabilitation beds are driving high and still-unmet demand for Encompass Health's core services. Ongoing hospital openings and bed expansions position the company to capture significant incremental patient volume, supporting higher revenue growth for years to come.

Read the complete narrative.

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Result: Fair Value of $139.08 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent labor shortages and challenges from rapidly evolving care models could pose hurdles to Encompass Health’s ambitious growth story in the years ahead.

Find out about the key risks to this Encompass Health narrative.

Another View: Traditional Valuation Metrics

While the most popular narrative highlights a 9.7% undervaluation, a look at current price-to-earnings ratios tells a less bullish story. Encompass Health trades at 24.2x, higher than both industry peers (17.9x) and its fair ratio of 21.4x. This gap suggests valuation risk, especially if future growth expectations fall short. Could the optimism priced in today fade if the market shifts focus?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Encompass Health Narrative

If you see things differently or would rather dive into the numbers on your own, you can build a personalized narrative in just a few minutes with Do it your way.

A great starting point for your Encompass Health research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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