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On Tuesday, KeyBanc Capital Markets adjusted its outlook on Encompass Health Corp (NYSE:EHC), increasing the price target from $122.00 to $135.00, while maintaining an Overweight stock rating. The stock, currently trading at $118.90 and near its 52-week high of $121.96, has demonstrated strong momentum with a 29.2% year-to-date return according to InvestingPro data. The revision reflects KeyBanc’s analysis of the inpatient rehabilitation facility (IRF) sector, pointing to a significant supply-demand imbalance that is expected to drive patient volume growth for Encompass Health in the coming years.
The KeyBanc analyst, Matthew Gillmor, identified three main factors contributing to this imbalance: an aging population, clinical guidelines favoring IRFs for stroke rehabilitation, and Certificate of Need laws that regulate healthcare facility expansions in certain states. This positive outlook aligns with the company’s strong financial performance, as InvestingPro data shows revenue growth of 11.2% and an impressive overall Financial Health Score of 3.3 (GREAT). These conditions are anticipated to support a 30% increase in IRF bed capacity relative to the 65 and older population, potentially reaching a ratio of 1 bed per 1,000 individuals in this demographic.
Encompass Health, along with other freestanding IRF operators such as Select Medical (NYSE:SEM) Holdings Corporation (SEM) and Lifepoint Health, is considered well-positioned to benefit from this long-term growth opportunity. The analyst’s confidence in Encompass Health’s ability to maintain attractive growth rates for the next 5 to 10 years is bolstered by the company’s strategic advantage of operating freestanding IRFs compared to hospital units, which typically operate with much slimmer margins.
KeyBanc’s optimistic stance is further supported by the belief that policy risks for the sector remain low at present. Additionally, the firm foresees the potential for Encompass Health to outperform estimates in the near term, sustained by favorable labor dynamics and patient mix, which were evident in the first quarter.
The new price target of $135 is based on a 12 times multiple of Encompass Health’s projected 2026 EBITDA, an increase from the previous 11 times multiple. This adjustment reflects KeyBanc’s increased confidence in the company’s long-term prospects and its ability to capitalize on the ongoing supply-demand imbalance in the IRF sector. According to InvestingPro analysis, the stock appears to be trading slightly above its Fair Value, with a P/E ratio of 24.07. The company has maintained dividend payments for 13 consecutive years, demonstrating consistent shareholder returns. For deeper insights into EHC’s valuation and growth potential, investors can access the comprehensive Pro Research Report, which provides detailed analysis of the company’s financial health and market position.
In other recent news, Encompass Health Corp reported impressive financial results for the first quarter of 2025, surpassing analysts’ expectations with an earnings per share (EPS) of $1.37, compared to the forecasted $1.20. The company’s revenue also exceeded projections, coming in at $1.46 billion against an expected $1.43 billion. Following these results, Encompass Health raised its full-year guidance, anticipating higher net operating revenue and EPS. Analysts from Mizuho (NYSE:MFG) Securities and RBC Capital Markets responded positively, raising their price targets to $130 and $125, respectively, while maintaining an Outperform rating on the stock.
Additionally, Encompass Health announced a quarterly dividend of $0.17 per share, payable on July 15, 2025, reflecting the company’s financial stability and commitment to generating shareholder value. The company also gained shareholder approval for its 2025 Omnibus Performance Incentive Plan, aiming to align executive compensation with company performance. This plan, along with the election of 10 board members and the ratification of PricewaterhouseCoopers LLP as the independent auditor, was approved with strong shareholder support.
These developments highlight Encompass Health’s robust operational strategies and its ability to capitalize on growing demand in the healthcare sector. The company continues to expand strategically, with plans to open new hospitals and add beds to existing facilities. These efforts underscore the company’s focus on meeting the increasing demand for its services and maintaining strong financial performance.
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