No matter what happens with trade tariffs, chances are that patients requiring physical therapy will not abandon their treatment. Encompass Health, the IBD Stock of the Day, is the leading stock in that indispensable service.
Birmingham, Ala.-based Encompass Health is the nation's largest provider of advanced therapy and nursing services, offering treatment for hip fractures, strokes and other conditions that often require months of rehab. It serves primarily Medicare recipients. It operates 166 hospitals in 38 states and Puerto Rico. The company says one out of every three U.S. inpatient rehab-care patients is treated at its hospitals.
The company is part of a medical sector that has been holding up relatively better while manufacturing, technology and others sectors get whipsawed on tariff policy shifts. IBD's Medical sector is down about 4% year to date.
While Encompass is not known for big growth (its three-year EPS and sales growth rates are 19% and 10%), the company's business is not considered discretionary. That makes the stock somewhat of a haven in a stock market that remains in a correction.
Encompass is the leader in IBD's outpatient and home care industry group. The stock's 96 Composite Rating is the highest of 19 companies in the group. It also has the second-best EPS Rating in the industry.
Physical Therapy Leader's Outlook
At its investor day in September, the physical therapy leader said it expects business to grow as the population aged 65 or older climbs toward 73 million in 2030.
In fourth-quarter results, announced Feb. 6, revenue and earnings topped analysts' most optimistic estimates. According to FactSet, adjusted earnings climbed 23% to $1.17 a share, while revenue rose nearly 13% to $1.405 billion.
Encompass Health forecast full-year revenue of $5.8 billion to $5.9 billion, and EPS from continuing operations of $4.67 to $4.96. For 2024, the company reported revenue of $5.373 billion and earnings of $4.46 per share.
This year, it plans to open eight hospitals.
Physical Therapy Provider Poised For New Advance
Results for the first quarter will be announced after the market close on April 24. Analysts expect $1.20 in earnings per share, an increase of 7%, on sales of $1.431 billion, up 9%.
The stock is up more than 9% so far this year, and is setting up for a potential new advance.
Encompass stock is forming a cup-with-handle base with an unusual form: The handle is 11 weeks long and almost as long as the cup portion. Normally, the handle is considerably shorter than the cup of the pattern. Also, the handle is 11% deep, which is almost as much as the cup section's depth.
Still, the base has acceptable dimensions. Plus, the up weeks in above-average volume outnumber the down weeks in high volume. That's a bullish trait.
Perhaps more importantly, because the stock has traded mostly sideways in a declining market, the relative strength line is surging and at all-time highs. That's an indication the stock could rally once it tops the 103.83 buy point of the pattern.
Shares have been trying to top the buy point this week, only to drop back into the base. The physical therapy stock got support at its 200-day moving average as it formed the base.
Encompass Health stock has a 21-day average true range (ATR) of 3.02%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs. In the current, unpredictable market, IBD suggests stocks with ATRs of 3% or below.
