Critical Review: Kindred Healthcare (KND) versus Encompass Health (EHC)

Kindred Healthcare (NYSE: KND) and Encompass Health (NYSE:EHC) are both healthcare companies, but which is the superior stock? We will contrast the two companies based on the strength of their risk, analyst recommendations, valuation, profitability, dividends, institutional ownership and earnings.

Analyst Recommendations

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This is a breakdown of recent ratings and recommmendations for Kindred Healthcare and Encompass Health, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Kindred Healthcare 1 4 1 0 2.00
Encompass Health 0 2 2 0 2.50

Kindred Healthcare presently has a consensus price target of $8.83, suggesting a potential downside of 6.53%. Encompass Health has a consensus price target of $60.00, suggesting a potential upside of 2.79%. Given Encompass Health’s stronger consensus rating and higher possible upside, analysts plainly believe Encompass Health is more favorable than Kindred Healthcare.

Profitability

This table compares Kindred Healthcare and Encompass Health’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Kindred Healthcare -11.16% 4.64% 0.50%
Encompass Health 8.70% 21.39% 7.21%

Institutional and Insider Ownership

86.8% of Kindred Healthcare shares are owned by institutional investors. Comparatively, 89.8% of Encompass Health shares are owned by institutional investors. 3.0% of Kindred Healthcare shares are owned by company insiders. Comparatively, 1.6% of Encompass Health shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Dividends

Kindred Healthcare pays an annual dividend of $0.12 per share and has a dividend yield of 1.3%. Encompass Health pays an annual dividend of $1.00 per share and has a dividend yield of 1.7%. Kindred Healthcare pays out -2.5% of its earnings in the form of a dividend. Encompass Health pays out 37.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Earnings and Valuation

This table compares Kindred Healthcare and Encompass Health’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Kindred Healthcare $6.03 billion 0.14 -$698.35 million ($4.88) -1.94
Encompass Health $3.97 billion 1.44 $256.30 million $2.68 21.78

Encompass Health has lower revenue, but higher earnings than Kindred Healthcare. Kindred Healthcare is trading at a lower price-to-earnings ratio than Encompass Health, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Kindred Healthcare has a beta of 1.08, suggesting that its stock price is 8% more volatile than the S&P 500. Comparatively, Encompass Health has a beta of 0.48, suggesting that its stock price is 52% less volatile than the S&P 500.

Summary

Encompass Health beats Kindred Healthcare on 12 of the 16 factors compared between the two stocks.

Kindred Healthcare Company Profile

Kindred Healthcare, Inc., incorporated on March 27, 1998, is a healthcare services company. The Company, through its subsidiaries, operates transitional care (TC) hospitals, a home health, hospice and community care business, inpatient rehabilitation hospitals (IRFs), a contract rehabilitation services business, nursing centers and assisted living facilities across the United States. The Company operates through divisions: the Kindred at Home division, the hospital division, the Kindred Rehabilitation Services division and the nursing center division. These divisions represent six segments: home health services, hospice services, hospitals, Kindred Hospital Rehabilitation Services, RehabCare and nursing centers. The home health services and hospice services operating segments are contained within the Kindred at Home division while the Kindred Hospital Rehabilitation Services and RehabCare operating segments are both contained within the Kindred Rehabilitation Services division.

Encompass Health Company Profile

Encompass Health Corporation, formerly HealthSouth Corporation, is a provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in 35 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies. The Company manages its operations through segments, including inpatient rehabilitation, and home health and hospice. It is an owner and operator of inpatient rehabilitation hospitals. It provides specialized rehabilitative treatment on both an inpatient and outpatient basis. It offers its home health and hospice services through Encompass Home Health and Hospice business (Encompass). Encompass operates home health and hospice agencies in 25 states, with concentrations in the Southeast, Oklahoma, and Texas. As of December 31, 2016, the Company operated 123 inpatient rehabilitation hospitals.

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