Encompass Health's Florida Expansion: A Strategic Play on Aging Demands and Scalable Growth

Encompass Health Corporation (EHC) has taken a bold step in addressing the growing demand for rehabilitative care with the July 15, 2025 launch of its new 50-bed inpatient rehabilitation hospital in Daytona Beach, Florida. This strategic move underscores the company's ability to capitalize on demographic trends, expand its regional footprint, and scale operations efficiently—a trifecta positioning it as a compelling investment in the healthcare sector.

Demographic Tailwinds: Florida's Aging Population Drives Demand

Florida's elderly population, particularly those over 65, is projected to grow by 25% by 2030, according to state health department estimates. Encompass Health's Daytona Beach hospital is squarely aimed at this demographic, offering specialized care for stroke, brain injury, and complex orthopedic conditions—ailments disproportionately affecting seniors. The facility's design, including an activities of daily living (ADL) suite replicating home environments and dialysis services, reflects a deep understanding of the clinical and psychosocial needs of aging patients.

Beyond chronic conditions, emerging trends like the rise of pickleball—a sport popular among retirees—have created a new demand stream. As participation grows, so does the incidence of joint and musculoskeletal injuries, which Encompass's rehabilitation services are uniquely positioned to address. This dual focus on both long-term chronic care and acute sports-related injuries creates a stable, recurring revenue stream.

Regional Market Saturation: Expanding Without Overextending

With 23 facilities in Florida and 169 nationwide, Encompass Health is already a major player in rehabilitative care. However, the Daytona Beach hospital represents a calculated step to deepen its presence in a state where 20% of residents are over 65. The $60 million investment, while exceeding initial estimates, includes an 8.85-acre site with room for future expansions. The hospital began with 20 beds, scaling to 50 within a year, with potential for an additional 30 beds if demand justifies it. This phased approach minimizes upfront risk while allowing flexibility to meet growing needs.

Critically, the facility is wholly owned, ensuring Encompass retains full control over operations and profit margins—a contrast to joint ventures, which can dilute returns. This model, combined with Florida's economic incentives for healthcare infrastructure, positions Encompass to maintain margins even as competition intensifies.

Operational Scalability: A Proven Model, Now Amplified

Encompass Health's national network of hospitals operates under a replicable template: specialized interdisciplinary teams, standardized care protocols, and technology-driven efficiency. The Daytona Beach hospital mirrors this, with all-private rooms, advanced rehabilitation technologies, and a focus on 24/7 care coordination. The company's ability to replicate this model across markets—plans include further Florida expansions through 2027—suggests strong scalability.

The cash flow visibility here is a key defensive advantage. Rehabilitation services are typically reimbursed through Medicare, which covers 60% of Encompass's patients. This predictable revenue stream, coupled with low patient turnover (due to acute care needs), creates a moat against economic volatility.

Valuation: A Growth Stock at a Reasonable Multiple

Encompass Health's valuation metrics as of Q2 2025 offer an attractive entry point. Its P/E ratio of 18.86 sits below the broader healthcare sector's average of 21.4, while its EV/EBITDA of 14.07 compares favorably to historical averages and suggests room for multiple expansion as growth materializes.

While direct comparisons to peers like Kindred Healthcare (KND) or HCR ManorCare are hampered by incomplete data, Encompass's focus on high-margin rehabilitative care—versus KND's broader post-acute mix—argues for a premium valuation. Encompass's 98% occupancy rate across its existing Florida facilities and 2024 EBITDA of $1.19 billion further reinforce its operational strength.

Investment Thesis: A Defensive Growth Play

Encompass Health's Florida expansion is not just a geographic play but a strategic bet on secular trends: aging populations, rising chronic disease prevalence, and the shift toward value-based care. With scalable infrastructure, predictable cash flows, and a valuation that rewards growth without overpaying, EHC offers a rare blend of defensive stability and upside potential.

Investors should consider adding EHC to portfolios seeking exposure to healthcare's aging boom, particularly as Baby Boomers' healthcare needs intensify. The Daytona Beach facility's 109 jobs and $65,000 average salary also signal local economic buy-in, reducing regulatory and reputational risks.

Risks and Considerations

Regulatory hurdles, such as Medicare reimbursement changes, and competitive pressures from new entrants or tech-driven disruptors pose risks. However, Encompass's entrenched network and clinical specialization mitigate these concerns.

Final Take

Encompass Health's Florida expansion is a masterclass in aligning business strategy with demographic realities. With aging populations driving demand and scalable operations ensuring growth, EHC is well-positioned to deliver steady returns. For investors seeking a healthcare stock with both defensive and growth characteristics, this is a buy at current levels.

Action Item: Monitor Encompass Health's occupancy rates in Florida and its progress in scaling Daytona Beach's bed count. A sustained occupancy above 90% would validate the model's scalability and warrant further upside in valuation.