DaVita vs. Encompass Health: Which Healthcare Stock Is a Better Buy in 2026?

DaVita posted FY 2025 revenue of nearly $13.6B (+6.5%) and net income of about $746.8M, while Encompass Health generated roughly $5.9B in revenue (+10.5%) with net income of $566.2M and a higher net margin near 9.5%. The article favors Encompass Health for 2026 because of faster growth, improving profitability, and an expansion plan for eight new locations with nearly 600 beds. DaVita screens cheaper at 13.1x forward P/E vs. 17.3x for Encompass Health, but its heavier dependence on government reimbursement and a 2025 cybersecurity incident add risk.

Analysis

The spread here is not simply growth vs. value; it is reimbursement sensitivity versus execution quality. EHC looks like the cleaner compounder because its growth is being driven by capacity expansion in a fragmented post-acute market, where incremental beds and tighter throughput can translate into operating leverage for several years. DVA’s larger scale makes it more defensive, but the combination of payer concentration, labor inflation, and a recent cyber incident raises the probability that reported cash flow overstates near-term earnings durability.

Second-order, DVA’s moat is partly a competitor problem: as weaker dialysis operators rationalize clinics, the industry may become more disciplined on pricing and staffing, but it also concentrates policy risk onto the remaining leaders. That is supportive over a multi-year horizon if government rates stay stable, yet it creates a binary setup around any unfavorable reimbursement update or commercial mix shift. EHC’s risk is different: if hospitals or regulators tighten interpretation of the 60% rule, the market would likely de-rate the stock quickly because the earnings multiple is built on continued classification and growth.

The near-term catalyst path favors EHC over the next 3-9 months because guidance raises and new-bed openings are visible, while DVA needs either margin stabilization or better reimbursement headlines to re-rate. The consensus may be underappreciating how much of EHC’s valuation premium is actually justified by a more visible compounding runway, while overestimating DVA’s cheapness without fully accounting for the cost of earnings volatility. In a risk-off tape, DVA can still work as a cash-generative defensive, but EHC is the better asymmetry if execution remains intact.

Key Decisions for Investors

• Go long EHC vs. short DVA as a 6-12 month relative-value pair; thesis is that EHC’s multiple premium stays supported by faster growth and better margin trajectory, while DVA remains capped by reimbursement and cost risk.
• Initiate a starter long EHC position on any pullback of 8-10% from recent highs; target is continued multiple support into the next guidance reset, with downside primarily tied to Medicare policy noise.
• Use DVA only as a defensive cash-flow sleeve, not a core growth holding; if entered, size smaller and pair against a higher-beta healthcare name to isolate reimbursement alpha.
• Buy EHC calls or call spreads into earnings/guidance windows over the next 1-2 quarters if volume trends remain strong; the catalyst is that incremental bed openings can change sell-side estimates faster than the stock has discounted.
• Avoid chasing DVA on valuation alone unless there is a clear reimbursement catalyst; if policy headlines turn adverse, the re-rating risk is larger than the forward P/E suggests.