The U.S. healthcare sector's performance in 2024 was mixed. Healthcare stocks lagged the broader market as investors moved away from more defensive industries and into high-growth technology stocks. However, this shift has made healthcare stocks more attractive in valuations, creating potential opportunities for investors. The outlook for this sector in 2025 looks promising as the demand for medical services increases.
Certain sectors of the healthcare industry are showing resilience. Employment in this sector rose particularly strongly in the first quarter, reflecting strong demand. Despite these positive trends, the industry faced ongoing challenges. Rising supply costs and rising labor costs put pressure on profit margins. However, the long-term outlook remains positive, with profits expected to increase, supported by strategies such as margin optimization, cost management, and integration of advanced technologies such as artificial intelligence, automation, and machine learning.
Towards the end of the year, health care stocks fell on concerns about possible policy changes by the new administration. These include proposals to cut government spending, reduce funding for hospitals, and expire insurance subsidies, all of which increase uncertainty. Such developments can put pressure on margins and require companies to navigate leaner funding conditions with innovative and efficient approaches.
Looking ahead to 2025, three healthcare stocks stand out for their combination of solid management, stability, and growth potential: Tenet Healthcare Corporation THC, Encompass Health Corporation EHC, and Ensign Group ENSG. These companies are highly recommended by analysts and are well-positioned to deliver strong returns in a dynamic healthcare environment.
Analysts provide valuable insight by evaluating a company's fundamentals in light of the current economic environment. Their recommendations can help investors identify stocks that are likely to outperform. Based on these insights, selected medical stocks offer promising opportunities for solid returns.
These three picks were identified using the Zacks Stock Screener. Each company boasts a Zacks Rank #2 (Buy), a VGM Score of A, and a market cap of over $1 billion. Additionally, more than 70% of brokers rate the company as a “buy” or “buy.” Our research shows that such stocks are often lucrative investment options. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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Tenet Healthcare: Headquartered in Dallas, Tenet, Tenet Healthcare is a diversified healthcare services company. Increasing hospitalization numbers and favorable payer mix are driving the company's hospital performance. The company plans to continue to allocate more capital to its precision professional service lines to drive organic growth. Its operations have been steadily profitable due to USPI's performance, continued acquisitions of SCD centers, acquisitions of multiple surgical hospitals, and tuck-in acquisitions.
We expect further expansion of our service lines in the outpatient medical treatment business in the future. THC is also willing to sell non-core or unprofitable businesses to pay down debt and maintain financial liquidity.
The Zacks Consensus Estimate for Tenet Healthcare's current-year earnings is pegged at $11.37 per share, suggesting an increase of 62.9% from the prior year. There have been seven upward revisions to estimates over the past 60 days, but no reverse revisions. THC has surpassed the Zacks Consensus Estimate on earnings in each of the last four quarters, delivering an average surprise of 59.9%.
Increase to Wall Street average price target: 39.42%
Broker average recommendation: 1.42
Market capitalization: $12.34 billion
Encompass Health: Based in Birmingham, Alabama, Encompass Health provides post-acute health care services in the United States and Puerto Rico. The number of patients and discharges are recovering, and the company aims to achieve a CAGR of 6% to 8% in discharges between 2023 and 2027. Increased occupancy and bed additions continue to support revenue. As the population ages, demand for the company's services should continue to rise.
Encompass Health's focus on growing its inpatient rehabilitation division is likely to increase its profitability. From 2023 to 2027, the plan is to open six to 10 new wards each year and add between 80 and 120 beds each year.
The Zacks Consensus Estimate for Encompass Health's current-year earnings is pegged at $4.29 per share, representing year-over-year growth of 17.9%. Over the past 60 days, estimates have been revised upward nine times, but not in the opposite direction. EHC has exceeded the Zacks Consensus Estimate for its earnings in each of the last four quarters, delivering an average surprise of 13.6%.
Encompass Health Corporation Price-eps-surprise | Encompass Health Corporation Quote
Last closing price: $94.17
52 week low/high price: $65.99 – $104.55
Wall Street average price target: $116.50
Increase to Wall Street average target price: 23.71%
Broker average recommendation: 1.08
Ensign Group: Based in San Juan Capistrano, California, Ensign Group provides skilled nursing, senior living, and rehabilitation services. The company benefits from increased utilization and a more skilled workday. The company has a strong track record of growth through strategic acquisitions with a focus on real estate and post-acute care businesses. The company acquires businesses and transforms them into market leaders.
Ensign Group recently agreed to add its first operations in Alaska and Oregon. It also expanded its presence in California and Washington. The company has a strong balance sheet with $532.1 million in cash and cash equivalents at the end of the third quarter and a long-term debt-free current maturity of just $142.6 million. This will enable us to strive to improve shareholder value through dividend payments.
The Zacks Consensus Estimate for Ensign Group's current-year earnings is expected to be $5.49 per share, suggesting year-over-year growth of 15.1%. In the past 60 days, estimates have been revised upward three times, but not in the opposite direction. ENSG has surpassed the Zacks Consensus Estimate for its earnings in each of the last four quarters, delivering an average surprise of 1.3%.
The Ensign Group, Inc. Stock Price and EPS Surprise
Ensign Group, Inc. Price-eps-Surprise | Ensign Group, Inc. Quote
Last closing price: $134.72
52 week low/high price: $110.71 – $158.45
Wall Street average price target: $164.33
Increase to Wall Street average price target: 21.98%
Broker average recommendation: 1.50
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