Encompass Health Corp (EHC)
Fair ValueFundamental
67
Price
$121.25
Market Cap
$12.23B
Part 1 · What the company is worth
Overview
Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the United States. Its hospitals take patients who have just come through an acute-care stay — after a stroke, a hip fracture, major surgery, a brain or spinal cord injury, or a debilitating neurological illness — and give them intensive, physician-supervised rehabilitation for a stay typically measured in days to a few weeks, with the goal of sending them home rather than to a nursing facility. As of December 31, 2025 the company operated 173 inpatient rehabilitation hospitals in 39 states and Puerto Rico, with 11,465 licensed beds, and recorded 263,299 discharges during the year. Some hospitals are wholly owned; others are joint ventures with local acute-care hospital systems, which also supply patient referrals. Since the July 2022 spin-off of its home health and hospice business (Enhabit), inpatient rehabilitation is the only business the company runs.
How it makes money
Revenue is a per-patient, per-stay payment collected almost entirely from third-party payors rather than from patients. Traditional Medicare, which pays inpatient rehabilitation facilities a prospective lump sum per discharge based on the patient's condition and case mix rather than on days or services used, is by far the largest source. Growth comes from filling existing beds, adding beds to current hospitals, and opening or acquiring new ones. Of $5,935.2 million of net operating revenues in fiscal 2025, $5,756 million came from inpatient services and roughly $179 million from other sources. The 2025 payor mix was 65.4% traditional Medicare, 16.4% Medicare Advantage, 10.7% managed care, 3.1% Medicaid, 0.7% other third-party payors, 0.5% workers' compensation, 0.3% paid directly by patients, and 2.9% other income.
Competitive moat
Scale · NarrowEncompass Health is the largest operator in its niche, with 173 hospitals and 11,465 licensed beds at the end of 2025, and that scale is real: a national footprint spreads clinical protocols, staffing systems and the cost of regulatory compliance across far more discharges than a single-hospital competitor can. Barriers are reinforced by the rules themselves — an inpatient rehabilitation facility must meet strict Medicare admission criteria and quality-reporting obligations, and in many states a new hospital needs a certificate of need. Referral relationships with acute-care hospitals, several of them formalised as joint ventures with the referring system, are sticky for the same reason. But the advantage is narrow, not wide: the company's own filing lists competitive pressure among its risk factors, patients can be sent instead to skilled nursing facilities or home health, and the dominant payor sets the price unilaterally, so scale protects cost per discharge more than it protects the revenue line.
What drives demand
DefensiveNobody schedules a stroke around the business cycle. Demand comes from the incidence of disabling medical events — strokes, hip fractures, major surgeries, neurological disease — in an ageing population, and from acute-care hospitals wanting to discharge patients who still need intensive care. That makes volumes largely independent of recessions and consumer confidence: discharges rose in each of the last three years while revenue went from $4,801.2 million in 2023 to $5,373.2 million in 2024 and $5,935.2 million in 2025. The cyclical exposure that exists is political and fiscal rather than economic: the Medicare payment rate, the Medicare Advantage share of patients, and the wage cost of clinical staff.
Key risks
- Cuts, delays or suspension of reimbursement — The filing lists reductions or delays in, or suspension of, reimbursement by governmental or private payors as its first risk factor. Medicare sets the price administratively, so a rule change made in Washington reaches revenue without any commercial negotiation.
- Restrictive reading of what Medicare will pay for, and claim audits — Two separate risk factors cover restrictive interpretations of the regulations governing reimbursable claims and audits that may assert the company was overpaid. A further factor flags substantive and procedural deficiencies in the administrative appeals process for denied Medicare claims — money already earned can be clawed back and contested slowly.
- Shift in payor mix or patient acuity — The company states that changes in its payor mix or in the acuity of its patients could reduce revenues or profitability. Medicare Advantage plans and third-party payors and 'conveners' working to steer patients and cut payments to providers are called out as a distinct risk.
- Hiring and keeping clinical staff — Among operational risks the filing names the inability to attract and retain nurses, therapists and other healthcare professionals. Staffing is the input the business cannot substitute: beds without clinicians cannot take patients.
- Referral sources and joint-venture partners — Risk factors cover the inability to maintain or develop relationships with patient referral sources, and the possibility that acute-care hospitals participating in joint ventures with the company experience operational or financial difficulties of their own.
- Regulation, licensing and compliance — The company flags changes in healthcare rules at federal, state or local level, compliance with extensive and frequently changing laws applicable to healthcare providers, the inability to maintain proper licensing, quality-reporting requirements, and adverse outcomes of lawsuits and regulatory proceedings including qui tam suits.
- Expansion that does not integrate, and information-system incidents — The filing lists the inability to complete and integrate de novo developments, acquisitions, investments and joint ventures, and separately incidents affecting the operation, availability or security of the company's or its vendors' information systems, including patient information held in them.
- Debt and its covenants — Under financial risks the company states that its debt and the associated restrictive covenants could have negative consequences, alongside general conditions in the economy and capital markets, and warns it may be unable or unwilling to continue declaring and paying dividends.
Customer concentration
Top customers account for 65.4% of revenue
The real customer here is a payor, not a patient. Traditional Medicare alone accounted for 65.4% of 2025 revenues; Medicare Advantage plans added 16.4% and managed care 10.7%, with Medicaid at 3.1% and everything else in small single digits. The filing states plainly that revenues and receivables from Medicare are significant to its operations. Concentration of this kind is normal for an inpatient rehabilitation operator, but it means one administrative decision by a single payer moves the majority of the revenue line, and the company has no pricing power over it.
The case for
Buyers argue that this is the leading operator in a niche whose demand is set by demographics rather than by the economy, and that the company is still adding capacity into it: 173 hospitals at the end of 2025 against 166 a year earlier, with revenue up from $5,373.2 million to $5,935.2 million. They point to the position as the largest inpatient rehabilitation operator, to joint ventures that tie the company to the acute-care hospitals sending it patients, and to regulatory requirements — Medicare admission criteria, certificate-of-need rules in many states — that make a new competing hospital slow to build. They also argue the business is simpler to follow since the 2022 Enhabit spin-off left a single line of business.
The case against
Sellers fear a business whose price is set by the government. Traditional Medicare paid 65.4% of 2025 revenues and Medicare Advantage another 16.4%, and the company's own risk factors open with reductions, delays or suspension of reimbursement, restrictive readings of which claims are payable, audits asserting overpayment, and appeals processes it describes as procedurally deficient. They point to the risk factor on payor mix: as patients move from traditional Medicare toward Medicare Advantage plans and third-party 'conveners' that work to steer patients and cut payments, the same discharge can earn less. They add the staffing risk the company discloses — nurses and therapists it may not be able to attract or retain — the cost of growing by building and acquiring hospitals that must then be integrated, and debt with restrictive covenants in a business that cannot raise its own prices to cover a squeeze.
Generated on September 18, 2026 with claude-haiku-4-5 — shared with all users
Direct competitors
Who this company fights with for the same customers
Generated on September 18, 2026 with claude-haiku-4-5 — shared with all users
As the largest hospital-based provider of inpatient rehabilitation in the country, HCA keeps inside its own rehabilitation units the patients that Encompass Health names as its primary source of admissions.
It is the only other large listed operator of freestanding inpatient rehabilitation hospitals, competing for the same post-surgical and post-stroke patients referred out of acute-care hospitals in overlapping US markets.
Privately held Lifepoint runs more than 45 joint-venture rehabilitation hospitals with regional health systems, competing with Encompass Health for exactly those hospital partnerships and the patients they feed.
A private operator of 45 rehabilitation hospitals across 14 states, it competes bed-for-bed with Encompass Health in Western and Southern markets such as Texas, Arizona and New Mexico.
This private post-acute group runs inpatient rehabilitation hospitals alongside long-term acute care facilities in over twenty states, taking the same Medicare rehabilitation admissions in the markets where the two overlap.
Balance Sheet & Liquidity
Revenue
$6.21B
Trailing 12 months (through 6/30/2026)
Net Income
$621M
Trailing 12 months (through 6/30/2026)
Free Cash Flow
$439M
Total Equity
$2.44B
Total Liabilities
$3.81B
Current Ratio
1.19
Interest Coverage
-
Debt/EBITDA
1.94
Earnings Per Share
Revenue & Net Income
Free Cash Flow
Income Breakdown
Historical statement
Margins over time
Debt over time
How heavy the debt is
Growth grid
Growth — Revenue
Fair Value Estimation
Fair Value
$138.97
Current Price
$121.25
Margin of Safety
+12.8%
Fair Value Range
$113.52 - $164.42
Spread across the valuation methods used, not a statistically calibrated confidence interval.
Estimation Methods
Valuation Metrics
P/E Ratio
19.79
ROE
23.2%
P/B Ratio
4.61
P/FCF
28.99
Gross Margin
-
ROIC
-
Profitability Radar
Value Creation (Economic Moat)
ROIC
-
WACC
8.2%
ROIC − WACC
-
Fundamental Analysis Criteria
Passed (17)
- EPS shows upward trend
- Price CAGR 14.01%
- P/FCF 28.99
- Debt/Equity ratio
- Positive Free Cash Flow
- Current Ratio
- Debt/EBITDA
- Return on Tangible Assets
- ROE 25.0%
- Revenue Growth 5Y 10.7%
- Analyst Consensus 94% Buy
- Earnings Surprise avg 5.7%
- PEG Ratio 1.39
- Earnings Quality (OCF/NI) 1.95
- Share Dilution 0.0%
- Net Margin Trend 10.0% vs 9.2%
- Piotroski F-Score 8/9
Failed (6)
- EPS CAGR 4.50%
- P/B Ratio 4.61
- CapEx intensity
- Low reliance on intangibles
- Price below Graham Number
- DCF valuation (Overvalued)
Unavailable (5)
- ROIC NaN%
- Gross Margin NaN%
- Dividend Payout NaN%
- Operating Margin NaN%
- Interest Coverage
Piotroski F-Score
Strong financial health
Earnings Quality
High quality: earnings backed by cash
Share Dilution
Buying back shares. Shareholder friendly
Institutional Holdings
Governance
Executive Team
| Name | Title | Age |
|---|---|---|
| Mr. Mark J. Tarr | CEO, President & Director | 63 |
| Mr. Douglas E. Coltharp | Executive VP & CFO | 63 |
| Mr. Patrick W. Tuer | Executive VP & COO | 40 |
| Mr. John Patrick Darby | Executive VP, General Counsel & Corporate Secretary | 60 |
| Dr. Elissa Joy Charbonneau D.O., M.S. | Chief Medical Officer | 65 |
| Mr. Andrew L. Price | Senior VP & Chief Accounting Officer | 58 |
| Mr. Rusty Yeager | Chief Information Officer & Senior VP | - |
| Mr. Mark Miller | Senior Vice President of Investor Relations & Strategic Planning | - |
| Ms. Dawn Rock | Chief Compliance Officer | - |
| Mr. Anthony A. Hernandez | Chief Human Resources Officer | 59 |
Audit Risk
1
Board Risk
2
Compensation Risk
2
Shareholder Rights Risk
2
Part 2 · The price and when to enter
This part won't tell you whether the company is worth owning: it helps you choose when to buy it, once the fundamentals have convinced you. Inside: technical analysis, potential, historical drawdowns, gamma exposure.
Documents
- View document
Annual Report (10-K)
A yearly overview of the business, its financial results, and the risks it faces.
Filed on 2026-02-26
- View document
Quarterly Report (10-Q)
A snapshot of financial performance for the most recent three-month period.
Filed on 2026-08-07
- View document
Current Report (8-K)
An announcement of a major event, such as a leadership change or big news.
Filed on 2026-08-13
via SEC EDGAR
Income History
via SEC EDGAR
Latest News
Recent headlines for EHC, sourced from Markets Gazette.