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On Thursday, Raymond (NSE:RYMD) James reiterated its Strong Buy rating on Encompass Health Corp (NYSE:EHC) with a steady price target of $120.00, as the stock trades near its 52-week high of $104.55. The firm’s analyst adjusted the first-quarter adjusted EBITDA estimate to $285 million, a slight decrease from the initially projected $290.6 million. The revision reflects a more accurate representation of typical first-quarter seasonality observed in the company’s financial performance. According to InvestingPro data, analysts maintain a highly bullish consensus on EHC, with several additional key metrics and insights available through the platform’s comprehensive Pro Research Report.
The analyst noted that Encompass Health’s first-quarter EBITDA has historically decreased sequentially from the fourth quarter, citing examples from previous years. For instance, the first quarter of 2024 saw a $0.2 million sequential dip, while the same quarters in 2022 experienced a $2.3 million decrease each. However, the first quarter of 2023 bucked this trend with an increase of $4.4 million. Contributing factors to these fluctuations include the reset of payroll taxes at the beginning of the year, fewer calendar days compared to the fourth quarter, and the increased use of premium labor, which includes contract labor and shift bonuses. Despite these seasonal fluctuations, InvestingPro data shows the company maintains strong financial health with an overall score of "GREAT" and has demonstrated impressive revenue growth of 11.91% over the last twelve months.
The adjustment in labor costs was significant, with premium labor expenses rising by $3 million sequentially in the first quarter of 2024, $1.6 million in the first quarter of 2023, and $11.7 million in the first quarter of 2022. The latter was during the peak of labor inflation and was noted as not representative of a normal trend.
Furthermore, the analyst pointed out that the consensus estimates for year-over-year organic growth in the first quarter might be overly optimistic. After accounting for various factors such as a $5 million out-of-period payment for the Direct Patient Placement program in the first quarter of 2024, pre-opening expenses, and new costs from the Oracle (NYSE:ORCL) ERP implementation and the Augusta JV non-controlling interest, the revised estimate implies approximately 9% organic growth year-over-year.
Despite the reduced first-quarter estimate, Raymond James has not altered its full-year or 2026 estimates nor its long-term view on Encompass Health. The firm continues to favor the stock due to its durable organic and inorganic growth trends, free cash flow generation, strong operational capabilities, and relatively low exposure to policy risk. InvestingPro analysis reveals the company’s stability through its low volatility (Beta: 0.76) and consistent performance. For deeper insights into Encompass Health’s valuation, growth potential, and comprehensive financial analysis, investors can access the detailed Pro Research Report, which is part of InvestingPro’s coverage of over 1,400 US equities.
In other recent news, Encompass Health Corporation has announced significant changes in executive compensation. The company’s CEO, Mark Tarr, will see his base salary increase from $1,050,000 to $1,100,000 in 2025, with adjustments also made to his bonus and equity awards. Additionally, Tarr’s annual allowance for personal use of the company’s aircraft will rise to $100,000. Other executives, including CFO Douglas E. Coltharp and Chief Medical (TASE:BLWV) Officer Elissa J. Charbonneau, will also receive increases in their compensation packages. Encompass Health has declared a quarterly cash dividend of $0.17 per share, payable on April 15, 2025, to shareholders on record as of April 1, 2025. This move aligns with the company’s ongoing commitment to returning value to its shareholders. KeyBanc Capital Markets has raised Encompass Health’s stock price target to $120, following an impressive fourth-quarter earnings report. Analyst Matthew Gillmor highlighted the company’s strong EBITDA performance and growth strategy, maintaining an Overweight rating on the shares. These developments reflect Encompass Health’s strategic focus on growth and shareholder value.
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