Have you been paying attention to shares of Encompass Health (EHC)? Shares have been on the move with the stock up 8.2% over the past month. The stock hit a new 52-week high of $103.64 in the previous session. Encompass Health has gained 52.7% since the start of the year compared to the 3.2% move for the Zacks Medical sector and the 15.4% return for the Zacks Medical - Outpatient and Home Healthcare industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 28, 2024, Encompass Health reported EPS of $1.03 versus consensus estimate of $0.94 while it beat the consensus revenue estimate by 1.73%.
For the current fiscal year, Encompass Health is expected to post earnings of $4.27 per share on $5.34 billion in revenues. This represents a 17.31% change in EPS on a 11.26% change in revenues. For the next fiscal year, the company is expected to earn $4.75 per share on $5.81 billion in revenues. This represents a year-over-year change of 11.35% and 8.74%, respectively.
Valuation Metrics
Encompass Health may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Encompass Health has a Value Score of A. The stock's Growth and Momentum Scores are B and A, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 23.9X current fiscal year EPS estimates, which is a premium to the peer industry average of 23.8X. On a trailing cash flow basis, the stock currently trades at 15.7X versus its peer group's average of 12.5X. Additionally, the stock has a PEG ratio of 1.36. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Encompass Health currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Encompass Health meets the list of requirements. Thus, it seems as though Encompass Health shares could have a bit more room to run in the near term.
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Encompass Health Corporation (EHC) : Free Stock Analysis Report
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