Encompass Health: A High-Conviction Buy in a Resilient Post-Acute Care Sector

The post-acute care sector, long undervalued in the broader healthcare landscape, is undergoing a transformation driven by demographic shifts and evolving patient needs. Encompass Health (EHC), a leader in inpatient rehabilitation, is uniquely positioned to capitalize on these trends. With a robust operational footprint, a clear growth strategy, and alignment with the aging U.S. population's demand for skilled nursing services, Encompass Health represents a compelling long-term investment opportunity.

Operational Scale and Financial Resilience

Encompass Health's dominance in the post-acute care sector is underscored by its vast operational scale. As of 2025, the company operates 171 inpatient rehabilitation facilities across 39 states and Puerto Rico, serving approximately one-third of all inpatient rehabilitation patients in the U.S. This market share is not merely a function of size but of strategic execution: the company reported a 9.4% year-over-year revenue increase in Q3 2025, with net operating revenue reaching $1.4775 billion. Its trailing twelve-month revenue of $5.8 billion reflects a business model that balances volume growth with operational efficiency.

The company's financial resilience is further reinforced by its disciplined approach to capital allocation. Encompass Health plans to open 6–10 new hospitals annually through 2027, with eight new facilities expected in 2025 alone, particularly in high-growth markets like Florida and Connecticut. These de novo projects, combined with annual bed additions of 80–120, ensure that the company remains ahead of demand surges. For instance, its Franklin, Tennessee, facility is expanding to add 20 private rooms and a dialysis suite, increasing capacity from 40 to 60 beds. Such investments are not just about scale but about enhancing patient convenience and addressing unmet needs in complex care.

Demographic Tailwinds: Aging Population and Rising Demand

The U.S. demographic landscape is shifting in ways that directly benefit post-acute care providers. By 2034, the population of adults aged 65 and older will surpass that of children under 18 for the first time in history, a trend that has already accelerated due to a 13% increase in the 65+ population between 2020 and 2024. This aging cohort drives demand for services like inpatient rehabilitation, which is critical for managing conditions such as strokes, orthopedic injuries, and chronic diseases.

Moreover, the rise in aging-in-place-a preference for older adults to remain in their homes-has amplified the need for home-based care and professional caregiving services according to industry analysts. While Encompass Health's core strength lies in inpatient rehabilitation, its partnerships with hospitals and joint ventures (e.g., the 50-bed facility in Amarillo, Texas, with BSA Health System) position it to benefit from the broader post-acute care ecosystem. These collaborations allow hospitals to offload non-core services while Encompass Health gains access to new patient populations and geographic markets.

Strategic Positioning for Long-Term Value Creation

Encompass Health's growth strategy is a masterclass in proactive expansion. The company's 2025 capital plan includes adding 340 beds through new projects and 100–120 beds via facility expansions, with a focus on high-need areas like rural and underserved communities. For example, its Greenville, South Carolina, expansion will add 40 beds and include amenities such as a family courtyard and upgraded therapy areas, directly addressing patient and caregiver needs.

The company's ability to secure partnerships is equally noteworthy. By forming joint ventures, Encompass Health mitigates capital risk while leveraging the infrastructure of partner hospitals. This model is particularly effective in markets where regulatory or financial barriers might otherwise hinder entry. Additionally, the company's focus on de novo hospital development-opening 6–10 annually through 2027-ensures a pipeline of future revenue streams, insulated from the volatility of existing facilities.

Risks and Mitigants

While the aging population and rising demand are tailwinds, challenges such as workforce shortages and infrastructure gaps persist according to a recent study. Encompass Health, however, is addressing these through strategic investments in training and technology. For instance, its on-site dialysis services in Franklin, Tennessee reduce the need for patient transfers, thereby easing strain on both staff and patients. Furthermore, the company's partnerships with hospitals and health systems create a buffer against workforce constraints by pooling resources and expertise.

Conclusion

Encompass Health's combination of operational scale, demographic tailwinds, and strategic foresight makes it a standout in the post-acute care sector. With a clear roadmap for expansion, a strong balance sheet, and alignment with the U.S. Census Bureau's projection of 95 million Americans aged 65+ by 2060 according to official data, the company is poised to deliver consistent value creation. For investors seeking exposure to a resilient sector with long-term growth potential, Encompass Health is a high-conviction buy.