Below we present the list of 4 Stocks Billionaire Barry Rosenstein Loves (And 1 He’s Given Up On). For our methodology and a more comprehensive list please see 8 Stocks Billionaire Barry Rosenstein Loves (And 2 He’s Given Up On).
5. Encompass Health Corporation (NYSE:EHC)
Value of JANA Partners‘ 13F Position: $189 million
Number of Hedge Fund Shareholders (as of March 31): 48
Kicking off the second part of our list is Encompass Health Corporation (NYSE:EHC). Rosenstein trimmed his position in the healthcare provider by 3% during Q1, holding a stake of nearly 2.83 million shares. There was an overall 20% surge in hedge fund ownership of EHC during Q1, with the stock reaching a record level of interest among money managers.
JANA owns about 2% of Encompass Health Corporation (NYSE:EHC)’s shares and has pushed the company to consider strategic alternatives for its home health and hospice segment. The company announced in December 2021 that it would spin off the unit, while JANA continued to advocate for a merger, pushing the company to reengage with potential suitors. The spinoff is expected to close on July 1.
The Heartland Mid Cap Value Fund remains committed to the long-term potential of Encompass Health Corporation (NYSE:EHC), but discussed some of the issues that have plagued the company in recent quarters in its Q4 2021 investor letter:
“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.”
