Bank of America has raised its price target for Encompass Health (EHC, Financial) shares to $128, up from $125, reaffirming its Buy rating. This decision is based on Encompass Health's consistent performance that has exceeded expectations, leading to improved projections.

The analyst noted that Encompass Health's traditionally cautious forecasting suggests potential for further upward revisions throughout the year. The financial institution has adjusted its estimates to reflect these positive developments, which are highlighted in the company's recent business results.

Key Business Developments (February 07, 2025):

Revenue: Increased by 12.7% to $1.4 billion.

Adjusted EBITDA: Increased by 13.6% to $289.6 million.

Adjusted EPS: Increased by 23.2%.

Adjusted Free Cash Flow: Increased by 103.7% to $190.5 million for Q4, totaling approximately $690 million for the full year, a 31.3% increase from 2023.

Total Discharge Growth: 7.8% for the quarter.

Same-Store Discharge Growth: 5.8%.

Net Revenue per Discharge: Increased by 4.2%.

Medicare Discharge Growth: Increased by 6.8%.

Medicare Advantage Discharge Growth: Increased by 14.7%.

Managed Care Discharge Growth: Increased by 8.9%.

Stroke Discharges: Increased by 12.6%.

Neurological Disorders Discharges: Increased by 7.7%.

Bad Debt Expense: Decreased by 200 basis points to 2.1%.

Salaries and Wages per FTE: Increased by 4.8%.

Benefits Expense per FTE: Increased by 30.6% for Q4 and 12.4% for the full year.

Premium Labor Costs: $29.7 million in Q4, a decrease from $30.9 million in Q4 '23.

Net Leverage: Reduced to 2.2 times at year-end 2024.

2025 Guidance:

Net Operating Revenue: $5.8 billion to $5.9 billion.

Adjusted EBITDA: $1.16 billion to $1.20 billion.

Adjusted EPS: $4.67 to $4.96.

Encompass Health Corp (EHC, Financial) has expanded its facilities by opening 36 new hospitals and adding 474 beds from 2020 to 2024, representing an approximate 20% increase in total bed supply. The company plans further expansion in 2025, with seven new hospitals and about 100 beds added to existing facilities, focusing significantly on Florida.

However, the company faces some challenges, including elevated group medical and prescription drug costs expected through the first half of 2025. Pre-authorization requirements by Medicare Advantage plans pose access-to-care issues. There is also potential risk from increased construction costs and tariffs affecting future expansion plans. The 2025 guidance includes anticipated startup and ramp-up costs, potentially impacting EBITDA margins. Additionally, provider tax benefits in 2024 may not recur in 2025, adding uncertainty to financial projections.