Nations worldwide are experiencing a surge in hospital admissions owing to a resurgence of COVID-19 infections and post-covid syndromes, and an increase in the diagnosis of chronic diseases. This has buoyed investors’ interest in hospital stocks, as evidenced by the Health Care Select Sector SPDR Fund’s (XLV) 3.8% gains over the past month and 18% year-to-date returns.

In addition, the Biden Administration recently revised its Build Back Better social spending bill, which includes several healthcare provisions. The passage of this bill could potentially open new doors for the hospital industry. Moreover, according to a Grand View Research Report, the global hospital services market is expected to grow at an 8.1% CAGR  through  2026.

Against this backdrop, we think it could be wise to bet on fundamentally strong hospital stocks Encompass Health Corporation (EHC), Select Medical Holdings Corporation (SEM), and Hanger, Inc. (HNGR), which are expected to continue gaining in price in the coming months.

Click here to checkout our Healthcare Sector Report for 2021

Encompass Health Corporation (EHC)

A leading provider of inpatient rehabilitation and home-based care, Birmingham, Ala.-based EHC is also one of the largest Medicare-certified skilled home health services providers. The company operates roughly 140 hospitals, 250 home health locations, and 93 hospice locations in 42 states and Puerto Rico.

On October 21, EHC and Baptist Health South Florida agreed to a joint venture to include the Baptist Health home health agency in Miami, Florida. Barb Jacobsmeyer, CEO of Encompass Health’s home health and hospice business, said, “We look forward to continuing to help Baptist Health South Florida further enhance its mission of improving the health and well-being of individuals and to promote the sanctity and preservation of life, in the communities they serve.”

For the third quarter, ended September 30, 2021, EHC’s net operating revenues increased 9.4% year-over-year to $1.28 billion. The company’s net and comprehensible income increased 28.7% year-over-year to $100 million. Its adjusted EPS came in at $1.03, up 32.1% year-over-year. Also, its adjusted EBITDA for the quarter increased 6.7% year-over-year to $245.60 million.

EHC’s revenue and EPS are expected to increase 11.2% and 51.9%, respectively, year-over-year to $5.17 billion and $4.39 for its fiscal year 2021. It has surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 0.4% in price over the past year to close Friday’s trading session at $63.56.

EHC’s POWR Ratings reflect this promising outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Growth, Value, and Stability.

We have also graded EGC for Momentum, Sentiment, and Quality here. EHC is ranked #4 of 12 stocks in the B-rated Medical – Hospitals industry.

Select Medical Holdings Corporation (SEM)

SEM in Mechanicsburg, Pa., is one of the largest post-acute care providers, operating 99 critical illness recovery hospitals in 28 states. The company’s segments include specialty hospitals; outpatient rehabilitation; Concentra; and Others.

On June 21, SEM announced that it had entered a series of transactions whereby it will be operating seven new critical illness recovery hospitals, licensed as long-term acute care, and eight new outpatient clinics through acquisitions and new joint venture partnerships. These moves are expected to help it deliver better post-acute care solutions.

The company’s revenue for the second quarter, ended June 30, 2021, came in at $1.56 billion, representing a 26.9% year-over-year rise. SEM’s income from operations increased 137.6% year-over-year to $283.97 million. Its net income increased 190.7% year-over-year to $196.21 million, while its EPS came in at $1.22, up 212.8% year-over-year.

For fiscal 2021, SEM’s revenue is expected to increase 8.3% year-over-year to $5.99 billion. The company’s EPS is expected to come in at $3.03 in the current year, representing a 60.3% year-over-year rise. It has surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has returned 29.3% in price over the past nine months to close Friday’s trading session at $33.22.

It’s no surprise that SEM has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Sentiment, and a B grade for Growth, Value, and Stability.

Click here to see the additional POWR Ratings for SEM (Momentum and Quality). Again, SEM is ranked #3 in the Medical – Hospitals  industry.

Hanger, Inc. (HNGR)

HNGR provides orthotic and prosthetic (O&P) services; distributes O&P devices and components, manages O&P networks, and provides therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings in the USA. HNGR is headquartered in Austin, Tex.

On August 4, 2021, Vinit Asar, President and CEO of HNGR, said, “Our second quarter results reflected an encouraging recovery in Hanger’s business. Within the Patient Care segment, on a same-clinic basis, second quarter net revenue was approximately 96 percent of 2019 levels.”

HNGR’s net revenues for the second quarter, ended June 30, 2021, came in at $280.82 million, up 20.3% year-over-year. The company’s total current liabilities were $220.83 million for the period ended June 30, 2021, compared to $245.58 million for the period ended December 31, 2020. Moreover, its total liabilities were $867.75 million compared to $899.77 million for the same period.

Analysts expect HNGR’s revenue to increase 15.3% year-over-year to $1.15 billion in its fiscal year 2021. The company’s EPS is expected to grow 88.9% year-over-year to $1.19 for the current year. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 3.3% in price to close Friday’s trading session at $18.68.

HNGR’s strong fundamentals are reflected in its POWR Ratings. HNGR has an overall POWR Rating of A, which indicates a Strong Buy in our proprietary rating system.

Also, the stock has a B grade for Growth, Value, Stability, and Sentiment. Within the Medical – Hospitals industry, it is ranked #2. Click here to see the additional POWR Ratings for Momentum and Quality for HNGR.

Click here to checkout our Healthcare Sector Report for 2021

EHC shares were trading at $64.90 per share on Monday afternoon, up $1.34 (+2.11%). Year-to-date, EHC has declined -20.68%, versus a 24.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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