Encompass Health
EHC
$112.89
+1.65%
Encompass Health Corporation is a leading provider of post-acute healthcare services in the United States, operating a network of inpatient rehabilitation hospitals that specialize in treating patients recovering from strokes, neurological disorders, and complex orthopedic conditions. As the largest owner and operator of inpatient rehabilitation hospitals in the country, the company holds a dominant market position in a niche and growing segment of healthcare. The current investor narrative centers on the company's consistent revenue growth, improving margins, and strong cash flow generation, which have been supported by favorable demographic trends and increasing demand for rehabilitative care. Recent analyst upgrades and a steady dividend declaration underscore confidence in Encompass Health's operational execution and financial stability.…
EHC
Encompass Health
$112.89
Related headlines
EHC 12-Month Price Forecast
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Encompass Health's 12-month outlook, with a consensus price target around $140.50 and implied upside of +24.5% versus the current price.
Average Target
$140.50
0 analysts
Implied Upside
+24.5%
vs. current price
Analyst Count
—
covering this stock
Price Range
$125 - $152
Analyst target range
Encompass Health is covered by 12 analysts, with a consensus recommendation of 'Strong Buy' (mean rating of 1.08 on a 1-5 scale). The average price target is $140.50, implying approximately 25.2% upside from the current price of $112.21. The distribution leans heavily bullish, with no hold or sell ratings reported. This strong consensus reflects confidence in the company's growth trajectory and margin expansion. The target price range spans from a low of $125.00 to a high of $152.00, representing a spread of $27.00 or 21.6% of the average target. The high target of $152.00 assumes continued revenue acceleration, margin expansion, and potential multiple expansion as the market rewards consistent execution. The low target of $125.00 still implies 11.4% upside, suggesting downside risk is limited. Recent analyst actions have been uniformly positive, with Barclays, UBS, KeyBanc, BofA Securities, Truist, and Stephens & Co. all reiterating Overweight or Buy ratings over the past year. This pattern of sustained bullishness reinforces the positive sentiment. The relatively tight target spread indicates high conviction among analysts, reducing uncertainty around the stock's near-term prospects.
Bulls vs Bears: EHC Investment Factors
Encompass Health presents a compelling investment case with accelerating revenue growth, expanding margins, and strong free cash flow generation. The stock is rated a Strong Buy by analysts with a 25.2% upside to the average target, and a PEG ratio of 0.78 suggests undervaluation relative to growth. However, the trailing P/E of 18.89x trades at a premium to the industry average, and the low beta of 0.602 may limit upside in a strong market. The single most important tension is whether the company can sustain its margin expansion and revenue acceleration to justify the premium valuation; if growth decelerates, the stock could face multiple compression. Overall, the bull case currently has stronger evidence given the consistent operational execution and favorable demographic tailwinds.
Bullish
- Strong Revenue Growth Acceleration: Revenue grew 9.01% YoY in Q1 2026 to $1.587B, accelerating from 6.2% in Q4 2025 and 8.5% in Q2 2025, indicating strengthening demand for inpatient rehabilitation services.
- Expanding Profit Margins: Net margin improved to 12.26% in Q1 2026 from 10.41% a year earlier, while gross margin expanded to 48.44% from 43.35%, driven by better cost management and favorable payer mix.
- Attractive Valuation with PEG of 0.78: The PEG ratio of 0.78x suggests the stock is undervalued relative to its earnings growth rate, as a PEG below 1.0 typically signals an attractive entry point for growth investors.
- Strong Analyst Consensus and Upside: 12 analysts rate the stock a Strong Buy with a mean rating of 1.08, and the average price target of $140.50 implies 25.2% upside from the current price of $112.21.
Bearish
- Premium Valuation vs Industry Peers: Trailing P/E of 18.89x is at a 14.5% premium to the healthcare facilities industry average of ~16.5x, which could limit upside if growth decelerates or margins compress.
- High Debt-to-Equity Ratio of 1.11: Debt-to-equity of 1.11x indicates moderate leverage, which could strain cash flows if interest rates remain elevated or operating performance weakens.
- Modest 1-Year Price Performance: The stock has only gained 1.68% over the past year, underperforming the S&P 500's 18.35% return, suggesting potential momentum issues or sector rotation headwinds.
- Low Beta Limits Upside in Bull Markets: With a beta of 0.602, the stock is less volatile than the market, which may cause it to lag during strong bull markets, limiting capital appreciation potential.
EHC Technical Analysis
Encompass Health's stock is trading in a recovery phase, with the current price of $112.21 representing an 87.6% position within its 52-week range of $92.77 to $127.99. The 1-year price change of +1.68% is modest, but the stock has rebounded sharply from its 52-week low, indicating a shift from a downtrend to a recovery pattern. The price near the upper end of the range suggests building momentum, though it remains below the 52-week high, leaving room for further upside. Short-term momentum is strongly positive, with a 1-month price change of +14.63% and a 3-month change of +5.47%, both outpacing the S&P 500's respective returns of +0.31% and +4.67%. This acceleration in recent months contrasts with the tepid 1-year performance, signaling a potential trend reversal or mean reversion as the stock gains traction. The relative strength over 1 month is +14.32%, confirming strong near-term buying pressure. The 52-week low of $92.77 serves as key support, while the 52-week high of $127.99 is the immediate resistance level. A breakout above $127.99 would signal a resumption of the long-term uptrend, while a breakdown below $92.77 could indicate renewed weakness. The stock's beta of 0.602 implies it is significantly less volatile than the broader market, making it a lower-risk holding that may underperform in strong bull markets but offer downside protection during selloffs.
Beta
0.60
0.60x market volatility
Max Drawdown
-26.2%
Largest decline past year
52-Week Range
$93-$128
Price range past year
Annual Return
+5.4%
Cumulative gain past year
| Period | EHC Return | S&P 500 |
|---|---|---|
| 1m | +10.4% | +0.8% |
| 3m | +10.7% | +3.5% |
| 6m | +14.7% | +7.2% |
| 1y | +5.4% | +16.5% |
| ytd | +6.1% | +8.4% |
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EHC Fundamental Analysis
Encompass Health's revenue trajectory is solidly growing, with Q1 2026 revenue of $1.587 billion representing a 9.01% year-over-year increase from $1.455 billion in Q1 2025. This marks an acceleration from the 6.2% growth seen in Q4 2025 ($1.545 billion) and the 8.5% growth in Q2 2025 ($1.458 billion), indicating strengthening demand. Revenue growth is driven primarily by Medicare, which contributed $1.039 billion in the latest quarter, and managed care at $168 million, reflecting favorable payer mix and volume increases. The consistent sequential revenue growth from $1.301 billion in Q2 2024 to $1.587 billion in Q1 2026 underscores a robust operating environment. The company is highly profitable, with Q1 2026 net income of $194.5 million and a net margin of 12.26%, up from 10.41% in Q1 2025. Gross margin improved to 48.44% from 43.35% a year earlier, driven by better cost management and payer mix. Operating margin expanded to 19.01% from 18.35%, reflecting operational leverage. The company has maintained positive net income for at least eight consecutive quarters, with margins trending upward. Encompass Health maintains a healthy balance sheet with a debt-to-equity ratio of 1.11 and a current ratio of 1.08, indicating adequate liquidity. Free cash flow (TTM) stands at $464.4 million, providing ample capacity for capital expenditures ($162.4 million in Q1 2026) and shareholder returns. The company generated $313.1 million in operating cash flow in Q1 2026, covering its capex and dividends. ROE of 23.22% and ROA of 9.74% demonstrate efficient capital utilization and strong profitability relative to assets.
Quarterly Revenue
$1.6B
2026-03
Revenue YoY Growth
+9.0%
YoY Comparison
Gross Margin
48.4%
Latest Quarter
Free Cash Flow
$464399999.0B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is EHC Overvalued?
Given Encompass Health's positive net income, the trailing P/E ratio of 18.89x is the primary valuation metric. The forward P/E of 17.16x implies a discount to trailing earnings, suggesting the market expects continued earnings growth. The PEG ratio of 0.78x indicates the stock is undervalued relative to its growth rate, as a PEG below 1.0 typically signals an attractive entry point. Compared to the healthcare facilities industry, Encompass Health's trailing P/E of 18.89x is at a premium to the industry average of approximately 16.5x (based on available data), representing a 14.5% premium. This premium is justified by the company's superior net margin of 12.26% versus the industry average of around 8%, as well as its dominant market position and consistent growth. The EV/EBITDA multiple of 9.46x is reasonable for a healthcare services company with stable cash flows. Historically, Encompass Health's trailing P/E has ranged from roughly 12x to 25x over the past five years. The current 18.89x is near the midpoint of this range, suggesting the stock is fairly valued relative to its own history. The price-to-book ratio of 4.37x is above the 5-year average of around 3.5x, reflecting the company's strong ROE and asset efficiency. Overall, the valuation appears reasonable, with room for multiple expansion if growth continues to accelerate.
PE
18.9x
Latest Quarter
vs. Historical
Mid-Range
5-Year PE Range 12x~25x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
9.5x
Enterprise Value Multiple
Investment Risk Disclosure
Financial & Operational Risks: Encompass Health's debt-to-equity ratio of 1.11x indicates moderate leverage, which could pressure earnings if interest rates remain high or operating cash flows decline. The company's net margin of 12.26% is strong but could be impacted by rising labor costs or unfavorable payer mix shifts. Revenue concentration in Medicare (65.5% of Q1 2026 revenue) exposes the company to potential reimbursement cuts or regulatory changes, which could significantly reduce profitability. Additionally, the current ratio of 1.08x suggests tight liquidity, though operating cash flow of $313.1M in Q1 2026 provides a buffer.
Market & Competitive Risks: The stock's trailing P/E of 18.89x is at a 14.5% premium to the industry average, making it vulnerable to valuation compression if growth disappoints or sector sentiment turns negative. With a beta of 0.602, the stock offers downside protection but may underperform in strong bull markets, potentially leading to relative underperformance. Competitive risks include potential market share gains by other post-acute providers or hospitals expanding their own rehabilitation services. Recent analyst upgrades have been uniformly positive, but any negative earnings surprise could trigger a sharp re-rating given the high expectations.
Worst-Case Scenario: A combination of Medicare reimbursement cuts, rising operating costs, and a broader market downturn could drive the stock to its 52-week low of $92.77, representing a 17.3% decline from the current price of $112.21. In a severe recession, the stock could fall further, potentially testing the historical max drawdown of -26.22%, which would imply a price around $82.80. Investors could face losses of up to 26% in this adverse scenario, though the company's essential healthcare services and strong cash flows provide a degree of resilience.