Encompass Health: Insider Selling Sparks Concern, but Institutional Buying Points to a Hidden Gem

The healthcare sector is no stranger to volatility, but Encompass Health (NYSE:EHC) is currently navigating a fascinating paradox: significant insider selling amid robust institutional accumulation and strong financial performance. Is this a red flag or a contrarian buying opportunity? Let’s dissect the data to find out.

Insider Selling: A Cause for Concern?

Recent insider transactions at Encompass Health have drawn attention. On May 20, 2025, CEO Mark J. Tarr sold 118,384 shares worth $14.4 million, reducing his holdings to 527,070 shares. While this sale represents a substantial amount, it’s critical to note that Tarr retains a significant stake, signaling ongoing confidence in the company’s long-term prospects.

Other executives, including Chief Medical Officer Elissa Joy Charbonneau and EVP John Patrick Darby, also sold shares in April/May 2025, totaling approximately $16.7 million in insider sales across the quarter. Critics might argue this suggests pessimism, but consider the following:

• Magnitude in Context: Total sales of $16.7 million represent a mere 0.14% of Encompass Health’s $12.2 billion market cap. This is a drop in the ocean compared to the company’s scale.
• Profit-Taking vs. Bearish Sentiment: Insiders may be capitalizing on the stock’s 52-week high of $121.28, not necessarily signaling a downturn. Tarr’s retention of over 500,000 shares underscores his alignment with shareholders’ interests.

Institutional Buying: A Vote of Confidence

While insiders trimmed their positions, institutional investors were busy accumulating shares. Ensign Peak Advisors, for instance, increased its stake by 51.3% in Q4 2024, bringing its holdings to 75,174 shares. This aligns with a broader trend: 97.25% of Encompass Health’s shares are held by institutions, including BlackRock and T. Rowe Price.

Why the institutional enthusiasm? Let’s look at the fundamentals:

• Strong Financials: Q1 2025 revenue surged 10.6% to $1.46 billion, while adjusted EBITDA jumped 14.9% to $313.6 million. The company raised its full-year 2025 guidance, projecting revenue of $5.85 billion and adjusted EPS of $5.10.
• Dividend Growth: A quarterly dividend of $0.17 (annualized $0.68) offers stability, with a yield of 0.56%—modest but consistent.
• Sector Tailwinds: Encompass Health’s focus on rehabilitation and hospice care aligns with aging populations and rising demand for post-acute care. The company’s network of 84 inpatient rehabilitation hospitals and 32 hospice centers positions it to capitalize on this trend.

Technical Analysis: A Bullish Setup

The stock’s technical picture reinforces its appeal. As of May 20, 2025, Encompass Health trades at $121.06, near its 52-week high, with a 50-day moving average of $105.43 and a 200-day moving average of $100.74. This upward-sloping trend suggests a bullish momentum bias.

While the RSI is currently in overbought territory (above 70), this is typical for stocks in strong uptrends. A pullback to the 50-day average would present a high-probability entry point, with the $110–$115 zone acting as a key support level.

Valuation and Future Prospects

At current prices, Encompass Health trades at 10.2x forward EV/EBITDA, below its five-year average of 11.5x. Analysts maintain a "Buy" consensus, with an average price target of $120.86—slightly below current levels but suggesting further upside if earnings growth accelerates.

The company’s $12 billion market cap leaves room for expansion, particularly through acquisitions or partnerships in underserved post-acute care markets. Management’s track record of disciplined capital allocation—evident in the raised guidance—adds credibility to its growth narrative.

Conclusion: A Contrarian Opportunity Awaits

The recent insider selling has created a temporary dip in sentiment, but the fundamentals, institutional support, and technical setup all point to a compelling buy signal. While executives may be taking profits at elevated prices, the long-term story remains intact: Encompass Health is a leader in a growing sector with strong financials and a solid balance sheet.

Action Plan: - Aggressive Investors: Buy now at $121, targeting the $130–$135 price target by year-end.- Conservative Investors: Wait for a pullback to the $110–$115 support zone before entering.

The paradox of insider selling vs. institutional buying is a classic contrarian setup. Encompass Health’s valuation and momentum suggest this is a stock to own—not avoid—during this period of uncertainty.

Invest now, and let the sector’s tailwinds—and Encompass Health’s execution—do the rest.