Encompass Health: Model Update Following Q126 Results

Research evidence excerpt

Encompass Health: Model Update Following Q126 Results

Deutsche Bank

Research

North America Company Date

18 May 2026

Corporate Credit Encompass Health

High Yield Corporates

Model Update Following Q126 Results

Miles Highsmith

Summary and Recommendation Research Analyst

We rate EHC’s bonds Buy as a defensive investment. We believe EHC is a very +1-212-250-1606

stable, recession-resistant name that could perform well, especially in an uncertain

HY or healthcare sector, or in a scenario where broader healthcare or economic

trends weaken. We believe EHC has minimal exposure to Medicaid, exchanges,

and tariffs. EHC once again posted strong Q126 results and slightly raised its 2026

EBITDA guidance (that we believe could prove conservative). It’s our view that EHC

can continue to post very strong top line results through a combination of core

growth, possible white space and/or share capture, and thoughtful capex

investments that should yield new facilities and additional beds. Net leverage was

1.9x for LTM 3/31/26. Based on our projections net leverage would be 2.0x for FY26,

and we note cash should continue to be impacted as EHC spends more on bed The risks to our Buy rating are largely

expansions, de novos, and share repurchases. Debt/TEV provides for a significant operational and regulatory in nature. If EHC

equity cushion at current levels (based on TEV/EBITDA of 10.1x at the time of this experiences unexpected operational

pressure or significant payment changes in

writing), and we believe this TEV/EBITDA has been relatively stable over the years.

its IRF business, bonds could

Generally speaking, we believe EHC is fundamentally a solid business with a underperform. In addition, EHC derives a

thoughtful management team. significant portion of its revenue from

Medicare.