Encompass Health Corp (NYSE: EHC)

Sector: Healthcare Industry: Medical Care Facilities CIK: 0000785161
Market Cap 12.55 Bn
P/B 5.29
P/E 19.95
P/S 2.17
ROIC (Qtr) 14.79
Div Yield % 0.83
Rev 1y % (Qtr) 9.36
Total Debt (Qtr) 2.66 Bn
Debt/Equity (Qtr) 1.12

About

Encompass Health Corp, often recognized by the stock symbols EHC and EHC.A on the New York Stock Exchange, is a prominent player in the post-acute healthcare services industry. With a presence in 37 states and Puerto Rico, the company is renowned for its extensive network of inpatient rehabilitation hospitals, which cater to patients with complex medical conditions such as strokes, hip fractures, and neurological disorders. Encompass Health's primary business activities revolve around providing specialized rehabilitative care. This care is delivered...

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Price action

Investment thesis

Bull case

  • Strong operating cash flow of 1.11B provides robust 0.42x coverage of total debt 2.66B, indicating excellent debt servicing capability and financial flexibility.
  • Operating cash flow of 1.11B provides strong 21.91x coverage of stock compensation 50.60M, indicating sustainable incentive practices.
  • Strong operating cash flow of 1.11B provides 4.99x coverage of SG&A expenses 222.30M, showing efficient operational cost management.
  • Robust tangible asset base of 5.27B provides 48.89x coverage of working capital 107.80M, indicating strong operational backing.
  • Operating cash flow of 1.11B fully covers other non-current liabilities 320.70M by 3.46x, showing strong long-term stability.

Bear case

  • Operating cash flow of 1.11B barely covers its investment activities of (728.90M), with a coverage ratio of -1.52, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 1.11B provides thin coverage of dividend payments of (69.10M) with a -16.04 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Operating earnings of 930.40M show weak coverage of depreciation charges of 319.50M, with a 2.91 ratio indicating high capital intensity and potential reinvestment needs.
  • Free cash flow of 402.60M represents just -2.54x of debt issuance (158.30M), suggesting concerning reliance on leverage rather than internal cash generation for growth.
  • Operating cash flow of 1.11B is outpaced by equity issuance of (89.20M) (-12.43 ratio), indicating concerning reliance on equity markets for funding operations.

Peer comparison

Companies in the Medical Care Facilities
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 HCA HCA Healthcare, Inc. 114.88 Bn 18.11 1.54 46.35 Bn
2 THC Tenet Healthcare Corp 18.07 Bn 13.34 0.87 13.19 Bn
3 UHS Universal Health Services Inc 14.64 Bn 10.65 0.86 5.11 Bn
4 FMS Fresenius Medical Care AG 14.10 Bn 16.69 0.61 14.98 Bn
5 EHC Encompass Health Corp 12.55 Bn 19.95 2.17 2.66 Bn
6 ENSG Ensign Group, Inc 10.08 Bn 30.72 2.09 2.16 Bn
7 DVA Davita Inc. 8.90 Bn 11.53 0.67 12.78 Bn
8 CHE Chemed Corp 6.38 Bn 22.87 2.52 0.14 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 2.20 1.26
EV to Cash from Ops. EV/CFO 13.64 12.78
EV to Debt EV to Debt 5.68 12.10
EV to EBIT EV/EBIT 16.25 10.74
EV to EBITDA EV/EBITDA 11.44 16.04
EV to Free Cash Flow [EV/FCF] EV/FCF 37.54 18.02
EV to Market Cap EV to Market Cap 1.20 432.64
EV to Revenue EV/Rev 2.61 2.77
Price to Book Value [P/B] P/B 5.29 -1.92
Price to Earnings [P/E] P/E 19.97 5.13
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 9.11 0.10
Dividend Payout Ratio % Div Payout % (Qtr) 12.70 -13.44
Dividend per Basic Share Div per Share (Qtr) 0.70 0.27
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 17.47 5.42
Interest Coverage Int. cover (Qtr) 7.38 -97.94
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) -7.67 -114.65
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) -52.89 65.22
Dividend Growth (1y) % Div 1y % (Qtr) 12.90 0.97
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 24.13 -46.98
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 18.65 75.97
EBIT Growth (1y) % EBIT 1y % (Qtr) 20.94 -61.19
EBT Growth (1y) % EBT 1y % (Qtr) 27.68 -115.48
EPS Growth (1y) % EPS 1y % (Qtr) 27.86 -24.32
FCF Growth (1y) % FCF 1y % (Qtr) 49.39 309.51
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 16.81 17.88
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 0.84 1.04
Cash Payout Ratio Cash Payout (Qtr) 0.04 0.04
Cash Ratio Cash Ratio (Qtr) 0.12 0.39
Current Ratio Curr Ratio (Qtr) 1.14 1.39
Debt to Equity Ratio Debt/Equity (Qtr) 1.12 -13.19
Interest Cover Ratio Int Coverage (Qtr) 7.38 -97.94
Times Interest Earned Times Interest Earned (Qtr) 7.38 -97.94
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 21.60 -95.81
EBIT Margin % EBIT Margin % (Qtr) 16.05 -94.97
EBT Margin % EBT Margin % (Qtr) 13.88 -105.60
Gross Margin % Gross Margin % (Qtr) 26.60 23.31
Net Profit Margin % Net Margin % (Qtr) 10.90 -106.14