1. Encompass Health Corporation (NYSE:EHC)
Percentage of Baupost Group’s 13F portfolio: 2.29%
Value of Baupost Group’s Stake: $213.33 million
Number of Hedge Fund Holders: 48
Encompass Health Corporation (NYSE:EHC) is one of the best defensive stocks to buy according to Seth Klarman, who increased his stake in the firm by 319% in the first quarter to stand at 3 million shares priced at $213.3 million. Healthcare stocks with well-established business models and stable earnings provide investors a safe place to park their money in times of economic slowdown. Encompass Health Corporation (NYSE:EHC) provides post-acute healthcare services through its segments: Inpatient Rehabilitation, and Home Health and Hospice. The firm has a market cap of $5.63 billion, and offers a stable dividend yield of 1.99% as of June 17.
Raymond James analyst John Ransom on June 17 reiterated a ‘Strong Buy’ rating on Encompass Health Corporation (NYSE:EHC) shares, and revised the price target to $70 from $85. The company recently provided separate guidance for both its segments, ahead of the planned spinoff of its ‘Enhabit’ home health and hospice segment on July 1, which will form an independent company under the ticker EHAB. The analyst noted that the company’s updated 2022 EBITDA guidance came in around $17 million lower than his estimates on an adjusted basis.
Encompass Health Corporation (NYSE:EHC) disclosed EPS of $0.97 for the first quarter, outperforming estimates by $0.05. The company’s revenue of $1.33 billion for the quarter also beat analysts’ forecasts by $8.7 million.
A total of 48 hedge funds were invested in Encompass Health Corporation (NYSE:EHC) at the end of the first quarter, with $1.14 billion in collective stakes. This shows improving investor confidence over the previous quarter, where 40 hedge funds reported long bets on the company shares.
Heartland Advisors, an investment management firm, talked about the prospects of Encompass Health Corporation (NYSE:EHC) in its Q4 2021 investor letter. Here’s what the fund said:
“COVID complications. Shares of many Health Care companies lagged as the continuing threat of COVID-19 dampened demand for elective medical procedures and health care providers struggled to maintain adequate staffing in the face of burnout and resistance to vaccine mandates. The Strategy’s holdings in the sector trailed the benchmark average, and the group contained a key detractor, Encompass Health Corporation (EHC).
Encompass provides inpatient rehabilitation services as well as home-based health and hospice care. Both businesses enjoy a competitive advantage over many of their peers and, we believe, are well positioned to grow organically, and acquire smaller competitors that could further economies of scale.
A labor shortage has taken a toll on sales and profit margins at Encompass as the company struggles to fill positions in a challenging environment for nursing wages and availability. Revenues have also been hurt by a slowdown in elective surgeries performed, which results in a smaller pool of patients in need of rehabilitation services.
When we took a stake in Encompass late in the summer of 2020, we recognized that COVID-related headwinds could endure longer than anticipated. However, the team believes the current challenges will eventually fade as enhanced nurse recruiting outreach helps mitigate staffing pressures while COVID-19 containment and treatment efforts gain traction. With shares producing an 8% free cash flow yield and trading at just 9x 2022 enterprise value/earnings before interest, taxes, depreciation, and amortization, we believe our patience will be rewarded.”
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