Have you been paying attention to shares of Encompass Health (EHC)? Shares have been on the move with the stock up 5.3% over the past month. The stock hit a new 52-week high of $98.74 in the previous session. Encompass Health has gained 45.9% since the start of the year compared to the 8.1% move for the Zacks Medical sector and the 18.8% return for the Zacks Medical - Outpatient and Home Healthcare industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on August 5, 2024, Encompass Health reported EPS of $1.11 versus consensus estimate of $1.01.

For the current fiscal year, Encompass Health is expected to post earnings of $4.18 per share on $5.31 billion in revenues. This represents a 14.84% change in EPS on a 10.61% change in revenues. For the next fiscal year, the company is expected to earn $4.64 per share on $5.78 billion in revenues. This represents a year-over-year change of 11% and 8.76%, respectively.

Valuation Metrics

Encompass Health may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Encompass Health has a Value Score of A. The stock's Growth and Momentum Scores are B and C, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 23.3X current fiscal year EPS estimates, which is not in-line with the peer industry average of 25.3X. On a trailing cash flow basis, the stock currently trades at 15X versus its peer group's average of 15X. Additionally, the stock has a PEG ratio of 1.48. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Encompass Health currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Encompass Health meets the list of requirements. Thus, it seems as though Encompass Health shares could have a bit more room to run in the near term.

How Does EHC Stack Up to the Competition?

Shares of EHC have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is DaVita Inc. (DVA). DVA has a Zacks Rank of # 2 (Buy) and a Value Score of A, a Growth Score of C, and a Momentum Score of F.

Earnings were strong last quarter. DaVita Inc. beat our consensus estimate by 4.86%, and for the current fiscal year, DVA is expected to post earnings of $9.99 per share on revenue of $12.8 billion.

Shares of DaVita Inc. have gained 1% over the past month, and currently trade at a forward P/E of 16.5X and a P/CF of 9.81X.

The Medical - Outpatient and Home Healthcare industry is in the top 6% of all the industries we have in our universe, so it looks like there are some nice tailwinds for EHC and DVA, even beyond their own solid fundamental situation.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Encompass Health Corporation (EHC) : Free Stock Analysis Report

DaVita Inc. (DVA) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research