KeyBanc has reaffirmed its bullish stance on Encompass Health Corp (NYSE: EHC). The firm maintained an Overweight rating and a $145.00 price target after the Centers for Medicare and Medicaid Services released a new Medicare payment proposal. This development clears a key uncertainty that had weighed on the stock for months.
CMS Proposes a 2.4% Medicare Rate Increase
The Centers for Medicare and Medicaid Services proposed a 2.4% increase in Medicare payments to inpatient rehabilitation facilities for fiscal year 2027. CMS released this proposal on Thursday, and the figure landed close to market expectations.
A Rate in Line With Forecasts
Analysts at KeyBanc noted that the proposed increase aligns with what the market had anticipated. Moreover, the firm expects the final rule to improve further from this baseline. This suggests that the funding environment for rehabilitation providers could grow more favorable as the regulatory process moves forward.
Future Reforms Appear Limited
CMS also issued a request for information exploring future payment reforms. However, KeyBanc characterized these potential changes as modest and distant. They are over-the-horizon developments — nothing that will materially affect Encompass Health in fiscal year 2027. This assessment helped reinforce investor confidence in the near-term outlook for the company.
Why the Rule Is a Relief for Encompass Health
Encompass Health is one of the largest operators of inpatient rehabilitation facilities in the United States. Therefore, Medicare reimbursement rates directly influence its financial performance.
Overhang Cleared, Recovery Possible
KeyBanc analyst Matthew Gillmor pointed out that uncertainty around the FY2027 Medicare proposal had been acting as an overhang on EHC stock. Now that this event is behind investors, the path forward looks cleaner. Gillmor noted that clearing this hurdle could set the foundation for outperformance in the second half of 2026. Consequently, sentiment around the stock may shift from cautious to constructive in the coming months.
No Material Negative Surprises
Crucially, the proposed rule does not include provisions that would hurt Encompass Health in the near term. This is significant because investors had feared stricter or unfavorable regulatory adjustments. The absence of such measures removes a meaningful downside risk from the equation.
Stock Valuation and Analyst Sentiment
Despite the positive regulatory news, EHC shares remain near historically depressed levels. The stock currently trades at $97.39, close to its 52-week low of $92.77.
Undervalued With Room to Run
InvestingPro data shows that EHC appears undervalued, with a PEG ratio of 0.71 — a level that suggests the market may not be pricing in the company’s growth potential. The broader analyst consensus on the stock ranges from $130 to $160, placing KeyBanc’s $145 target squarely within that range.
Furthermore, Raymond James holds a Strong Buy rating on EHC, while Truist Securities maintains a Buy rating. Both firms cited solid volume trends, strong cash flow, and margins that beat expectations as reasons for confidence.
Strong Q4 2025 Results Add Confidence
Encompass Health delivered a robust fourth quarter in 2025, further strengthening the bull case.
Earnings Beat Forecasts
The company reported an EPS of $1.46 against a forecast of $1.30 — a meaningful beat. Revenue for the quarter reached $1.54 billion, meeting analyst projections.
EBITDA Surpasses Consensus
Adjusted EBITDA came in at $336.0 million, well above the consensus estimate of $313.2 million. Raymond James highlighted this figure as a key indicator of operational strength. Truist Securities echoed this view, pointing to healthy margins and disciplined cost management.
What This Means for Investors
Taken together, the Medicare proposal and strong earnings paint an encouraging picture for Encompass Health shareholders. The regulatory overhang has lifted. The company’s fundamentals remain solid. Additionally, the stock trades at a discount to analyst price targets, offering potential upside.
KeyBanc’s reaffirmation signals that the firm sees this as a turning point. As the final Medicare rule takes shape and operational momentum continues, EHC could attract renewed interest from both institutional and retail investors in the months ahead.
