4. Encompass Health Corporation (NYSE:EHC)
Baupost Group’s Stake Value: $213.33 million
Percentage of Baupost Group’s 13F Portfolio: 2.29%
Number of Hedge Fund Holders: 40
Increase in Stake: 319%
Encompass Health Corporation (NYSE:EHC) provides post-acute healthcare services through in-facility and home-care segments. Seth Klarman increased his stake in the firm from 716,000 shares in Q4 2021 to 3 million shares in the first quarter of 2022, recording a massive increase of 319%.
On April 27, Encompass Health Corporation (NYSE:EHC) reported its Q1 earnings, and EPS came in at $0.97, above estimates by $0.05. The company pulled in a revenue of $1.33 billion for the quarter, outperforming estimates by $8.7 million and growing 8.39% in comparison to the year-ago quarter.
Truist analyst David MacDonald on April 7 raised the firm’s price target on Encompass Health Corporation (NYSE:EHC) to $85 from $78 and reiterated a ‘Buy’ rating on the company shares. He remains bullish on the healthcare services industry which boasts attractive tailwinds and underlying demand drivers.
Of the 900+ elite hedge funds in the database of Insider Monkey, 40 reported ownership of positions in Encompass Health Corporation (NYSE:EHC) at the end of December. This is down from 44 hedge funds with stakes in the firm as of the end of September.
Here is what Heartland Advisors had to say about the market position of Encompass Health Corporation 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.”
