EHAB

Enhabit ($EHAB) CFO Buys $76,400 in Stock After 18% Crash - Management Confidence vs Regulatory Risk

08/12/2025 06:29

Enhabit Inc.'s ($EHAB) Chief Financial Officer Ryan Solomon purchased 10,000 shares worth $76,400 on August 8, according to an SEC filing disclosed on August 11. The purchase, executed at an average price of $7.64 per share, comes at a time when the home health and hospice care provider has been grappling with regulatory pressures that sent its stock tumbling. Enhabit is one of the largest providers of home health and hospice services in the United States, operating 249 home health locations and 114 hospice locations across 34 states from its Dallas, Texas headquarters. Since spinning off from Encompass Health in July 2022, the company has been positioning itself to capitalize on favorable demographic trends, including an aging U.S. population and increasing preference for home-based healthcare services. What makes Solomon's purchase particularly noteworthy is that it was executed pursuant to a Rule 10b5-1 trading plan, indicating this was a pre-planned transaction designed to avoid insider trading concerns. This suggests the CFO anticipated current price levels and established his buying plan in advance, signaling confidence in the company's long-term prospects despite near-term headwinds. Enhabit's stock has experienced extreme volatility this year. After climbing to $10.76 in mid-May 2025, shares crashed 18% in a single day on July 1, plummeting from $9.64 to $7.88 following news of proposed Medicare payment cuts. The Centers for Medicare & Medicaid Services (CMS) announced plans to reduce 2026 Medicare payments by 6.4%, which could eliminate $1.1 billion in sector revenue and significantly impact earnings across the home health industry. However, recent financial performance tells a different story. Enhabit reported second-quarter adjusted earnings of $0.13 per share on August 7, beating analyst expectations of $0.10 by 30%. Revenue increased 2.1% year-over-year to $266.1 million, marking the company's first year-over-year consolidated revenue growth since the spin-off. The hospice segment was particularly strong, with revenue jumping 19.4% to $60.2 million. The pattern of insider trading reveals strong management conviction. Director Jeffrey Bolton accumulated 21,000 shares worth approximately $210,000 between August and December 2024, while Director Stuart McGuigan purchased 15,000 shares for $132,150 in December. The only sale was a small transaction by the CAO in March worth about $9,400 under a Rule 10b5-1 plan. This overwhelmingly bullish insider activity suggests management views regulatory concerns as temporary while fundamentals continue improving. Investors should focus on the hospice segment's remarkable growth trajectory. Second-quarter hospice average daily census increased 12.3% year-over-year, representing six consecutive quarters of growth. Adjusted EBITDA surged 53.8% to $14 million with margins reaching 23.3%. This performance reflects structural tailwinds from demographic trends and increasing consumer preference for home-based end-of-life care. Financial health improvements provide additional confidence. The company has prepaid $50 million in debt through the third quarter, reducing its net debt-to-adjusted EBITDA ratio from 5.1x to 4.3x year-over-year. Cash and cash equivalents increased to $37.1 million as of June 30, while the current ratio of 1.57 indicates adequate short-term liquidity. Regulatory risks remain the primary concern. The proposed CMS Medicare payment cuts, set to take effect in 2026, could directly impact the Medicare revenue that comprises a significant portion of the company's business. While management has secured low double-digit rate increases through renegotiated private payer contracts, the structural challenge of Medicare dependence persists. From a valuation perspective, the stock appears attractively priced. The trailing P/E ratio of 11.04 is below healthcare sector averages, while the price-to-book ratio of 0.67 indicates shares trade below book value. The price-to-sales ratio of 0.36 also suggests significant undervaluation relative to peers. Analysts maintain price targets averaging $9-10, implying upside potential of over 30% from current levels. Zacks Investment Research recently upgraded Enhabit to a "Buy" rating, citing improving earnings revisions and operational momentum despite regulatory headwinds. Key factors to monitor include the outcome of industry lobbying efforts against CMS cuts and the company's strategic response. The industry is pushing for legislative relief through measures like the Preserving Access to Home Health Act. Enhabit is pursuing strategies to reduce Medicare dependence through private payer expansion, hospice growth, and operational efficiency improvements. CEO Barbara Jacobsmeyer's announced departure in July 2026 adds another variable, with succession planning underway to ensure strategic continuity under new leadership. The investment thesis centers on whether regulatory pressures represent a temporary setback or a structural challenge. The CFO's significant purchase suggests management views current prices as a compelling entry point, supported by improving fundamentals and strong cash generation. However, investors must carefully weigh Medicare policy risks against the company's ability to adapt and grow in a changing regulatory environment.