On Thursday, RBC Capital maintained a positive stance on Encompass Health Corp (NYSE:EHC), raising the stock's price target to $105 from the previous $95, while keeping an Outperform rating on the shares.
The adjustment comes after a review and update of the investment firm's financial model for Encompass Health, taking into account the company's performance in the second quarter and the latest guidance provided by its management. The firm's decision to increase the price target is a reflection of rolling forward their valuation to the upcoming year.
The analyst at RBC Capital has cited the second quarter results and the recent guidance from the company's management as key factors in reevaluating the stock's potential. The maintained Outperform rating indicates that the firm continues to see the company's stock outperforming the general market or its sector.
Encompass Health's updated guidance and recent quarterly performance have provided the basis for RBC Capital's revised valuation model. The firm's analysts use such models to forecast a company's future earnings and cash flow, which are critical components in determining the stock's price target.
The new price target of $105 represents the firm's expectation of where the stock will trade in the next 12 months. A price target is an analyst's projection of a stock's future price, based on earnings forecasts and assumed valuation multiples.
In other recent news, Encompass Health Corp. reported robust growth for Q2 of 2024, with revenue and adjusted EBITDA increasing by 9.6% and 8.9% respectively. The company also raised its 2024 guidance, despite a rise in bad debt expense. Additional highlights include the addition of 194 beds, plans to open two new hospitals, and the expansion of joint ventures, such as the one with Piedmont.
Moody's (NYSE:MCO) upgraded the company's ratings, reflecting positively on its performance. Encompass Health also expects a discharge growth compound annual growth rate of 6% to 8% and aims to maintain current revenue levels with better core margin leverage in the latter half of the year.
However, challenges such as increased bad debt due to medical necessity claim review audits and potential volatility in provider tax revenue could pose hurdles. Despite these, the company remains optimistic about its future, planning expansions into new geographies including Rhode Island and Connecticut.
InvestingPro Insights
As Encompass Health Corp (NYSE:EHC) garners a positive outlook from RBC Capital with an increased price target, a glance at InvestingPro data and tips provides a deeper financial perspective. With a market capitalization of $9.74 billion and a P/E ratio of 24.33, Encompass Health appears to be trading at a valuation that aligns with its near-term earnings growth, as the P/E ratio adjusted for the last twelve months as of Q2 2024 stands at 23.8. This is complemented by a PEG ratio of 0.92, suggesting a potentially favorable balance between the stock price and expected earnings growth.
Significantly, the company has demonstrated a robust revenue growth of 10.86% over the last twelve months, which is a testament to its operational strength. The gross profit margin of 41.32% further underscores the company's efficiency in managing its cost of goods sold relative to its sales.
From an investor's standpoint, the stock's low price volatility and the fact that it's trading near its 52-week high, as indicated by InvestingPro Tips, are notable. Additionally, the stock has experienced a large price uptick over the last six months, with a 26.54% total return in that period. These insights suggest that investors have been recognizing the company's performance and potential.
For those seeking further analysis and additional InvestingPro Tips, there are 9 more tips listed on InvestingPro's platform for Encompass Health, providing a comprehensive view of the company's financial health and stock performance (https://www.investing.com/pro/EHC). These tips could serve as valuable tools for investors looking to make more informed decisions regarding their investment in Encompass Health.
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