Issue #68

Why these two deeply embedded companies are positioned to win as healthcare shifts to the home and veterinary innovation scales.

The medical revolution is no longer just happening in laboratories or high-tech operating rooms—it is being won in the quiet spaces where care meets convenience and where innovation meets everyday survival. As the global healthcare system shifts from a "wait and treat" model to a "manage and prevent" framework, two critical pillars have emerged as the foundation of the next decade of healthcare growth: high-acuity home care and breakthrough animal health.

This is where the medical conversation shifts from traditional hospital infrastructure to the specialized services that are increasingly impossible to ignore.

👉 One company is becoming the essential provider for the "hospital-at-home" movement, delivering complex clinical care directly to a rapidly aging population.

👉 The other is a global leader in animal health, launching a new generation of "blockbuster" treatments for the companions and livestock that power our global economy.

👉 Both have navigated significant corporate transitions, are seeing a surge in analyst "Buy" ratings, and are currently positioned as high-value opportunities in a volatile market.

In this edition, we break down the home-care specialist and the veterinary innovator sitting at the intersection of medical necessity and massive demographic shifts—and why these two stocks are foundational for a resilient 2026 portfolio.

Enhabit, Inc. (NYSE: EHAB)

Enhabit, Inc. (NYSE: EHAB) is a leading national provider of home health and hospice services, operating over 360 locations across 34 states. Spun off from Encompass Health in 2022, the company has established itself as a critical player in the "hospital-at-home" movement, focusing on high-quality, cost-effective clinical care delivered in the patient’s preferred setting.

Business Model and Revenue Streams 📦

Enhabit operates a service-centric model designed to capture the growing demand for aging-in-place solutions. The company generates revenue through two primary segments:

• Home Health Revenue: This is Enhabit's largest segment, providing skilled nursing, physical therapy, and occupational therapy. Revenue is primarily driven by Medicare and Medicare Advantage reimbursements. The company has recently focused on "payer innovation," renegotiating contracts with private insurance providers to improve rates that historically lagged behind traditional Medicare.
• Hospice Revenue: Focused on end-of-life care, this segment provides pain management and emotional support. It serves as a high-margin growth engine for the company. Revenue is tied to the Average Daily Census (ADC), which has seen double-digit growth recently as Enhabit expands its footprint through "de novo" (newly built) locations.

Enhabit's business is highly sensitive to macroeconomic and regulatory policies, particularly those from the Centers for Medicare & Medicaid Services (CMS). While inflation has pressured labor costs for nursing staff, the company has mitigated this through AI-integrated scheduling and clinical documentation tools. Furthermore, recent federal shifts favoring home-based care over institutional settings provide a long-term tailwind for their volume-based model.

Recent Performance and Corporate Developments 📈

Enhabit reported strong results for the third quarter of 2025, signaling a successful turnaround following its independent debut.

Q3 2025 Financial Highlights: 💰

• Earnings Beat: The company reported an adjusted EPS of $0.17, significantly exceeding the analyst consensus of $0.12. This represented a sharp year-over-year increase from the $0.03 reported in the same period of 2024.
• Revenue Growth: Consolidated net service revenue reached $263.6 million, up 3.9% year-over-year. While slightly below top-line estimates due to a temporary national payer contract transition, the quality of revenue improved as the company moved away from low-reimbursement contracts.
• Hospice Outperformance: The hospice segment saw a 20% revenue jump, fueled by a 12.6% increase in the average daily census.

Strategic Initiatives and Mergers: 🤝

In a major corporate update, Enhabit announced a CEO transition plan in late 2024, with Barb Jacobsmeyer set to step down by mid-2026. Strategically, the company has pivoted from aggressive acquisitions to organic de novo growth. Management has stated that while they remain disciplined, the strengthening balance sheet may allow for "meaningful" M&A opportunities in 2026. Notably, the company successfully reduced its total debt by approximately $100 million since late 2023, lowering its interest expense and increasing financial flexibility.

Profitability and Fair Value 🎯

After navigating a period of net losses following its spin-off, Enhabit has reached a turning point in profitability. The company’s strategy centers on:

• Payer Mix Optimization: Transitioning patients to higher-paying "preferred" insurance contracts.
• Operational Efficiency: Using AI to reduce administrative burdens, projected to save millions in annual coding and scheduling costs.

In terms of fair value, Enhabit appears significantly undervalued by several metrics. It currently trades at a price-to-sales (P/S) ratio of approximately 0.52, meaning investors are paying just 52 cents for every dollar of revenue. With a Price-to-Book (P/B) ratio near 0.96, the stock is trading below the accounting value of its assets, suggesting a margin of safety for value-oriented investors.

Analyst Estimates and Ratings 📊

• Consensus Rating: The stock has seen a wave of bullish sentiment in the last 30 days, earning a consensus "Moderate Buy" or "Buy" rating. Top-tier firms like UBS and TD Cowen recently upgraded the stock from "Hold" to "Buy."
• Price Target: Analysts have raised their 12-month price targets to an average of $11.60 to $12.10, representing a potential upside of 10%–15% from current levels. Some aggressive targets reach as high as $14.00.
• Recent Momentum: Enhabit has been identified by firms like Zacks as a "fast-paced momentum" pick at a bargain, reflecting a 44% price return over the last six months.

Investor-Focused Takeaway: Is EHAB Right for Your Portfolio?

Enhabit offers a compelling play on the aging US demographic without the overhead of physical hospitals. Its transition from a debt-heavy spin-off to a leaner, hospice-led growth company makes it an attractive candidate for recovery-focused portfolios.

What to Watch in the Near Term: 📈

• 2026 CMS Rate Updates: Keep an eye on final Medicare reimbursement rates; recent news suggests the cuts will be less severe than originally feared, which is a major positive catalyst.
• CEO Succession: The appointment of a new CEO in 2026 will be a key signal for the company's next strategic phase.
• Hospice Margins: Continued growth in the hospice segment is vital to offsetting any regulatory pressures in the home health division.

Recommendation:

Enhabit (EHAB) is currently favored by analysts as a "Buy" due to its improving margins, debt reduction, and its status as a "bargain" compared to its peers in the medical care facilities sector.

Elanco Animal Health (NYSE: ELAN)

Elanco Animal Health Incorporated (NYSE: ELAN) is the world’s second-largest independent animal health company, specializing in the development and marketing of products for both pets and farm animals. Since its spinoff from Eli Lilly, Elanco has transformed into an innovation-led powerhouse, managing a diverse portfolio that includes parasiticides, vaccines, and high-tech nutritional health solutions.

Business Model and Revenue Streams 📦

Elanco operates a science-driven business model focused on the high-margin, cash-pay animal health market. Unlike human pharma, animal health benefits from shorter development cycles and a lack of significant "patent cliffs." The company’s revenue is balanced across two primary pillars:

• Pet Health Revenue: This segment accounts for approximately 52% of total revenue. It focuses on parasiticides (like the Seresto collar and Credelio), vaccines, and therapeutics for chronic conditions such as canine dermatitis. This is a brand-loyal, resilient market where pet owners are increasingly willing to spend on breakthrough treatments.
• Farm Animal Revenue: Making up about 48% of the business, this segment serves cattle, poultry, and swine industries. Revenue is driven by products that improve food safety and animal productivity, such as Experior, which reduces ammonia gas emissions in beef cattle.

Macroeconomic factors, particularly inflation and global trade policies, play a dual role for Elanco. While rising labor and raw material costs can pressure margins, the company recently announced that it expects 2026 tariff impacts to be immaterial, as they are offset by incremental price increases. Additionally, Elanco is shifting toward high-margin "blockbuster" products to insulate itself from broader economic volatility.

Recent Performance and Corporate Developments 📈

Elanco delivered a standout performance in the third quarter of 2025, beating both revenue and earnings expectations while raising its full-year outlook.

Q3 2025 Financial Highlights: 💰

• Total Revenue: The company reported $1.14 billion in revenue, a 10% increase year-over-year, surpassing the analyst forecast of $1.09 billion.
• Earnings Beat: Adjusted EPS came in at $0.19, significantly higher than the expected $0.13.
• Innovation Milestone: Revenue from new innovation products is scaling rapidly, with the "Big 6" blockbuster-potential products (including Zenrelia and Credelio Quattro) on track to generate nearly $1.1 billion in revenue by 2026.

Strategic Initiatives and Mergers: 🤝

While there were no major mergers in late 2025, Elanco has been aggressive in its "Innovation, Portfolio, and Productivity" (IPP) strategy. A major development in January 2026 was the USDA approval for Befrena, a new monoclonal antibody for canine dermatitis. This launch, alongside the expansion of their Kansas manufacturing facility, positions Elanco to dominate the $1.7 billion global canine dermatology market. Furthermore, the company successfully refinanced $2.1 billion in debt, significantly improving its interest expense profile for the coming years.

Profitability and Fair Value 🎯

Elanco is currently in a transition from a debt-heavy post-acquisition phase to a period of sustained profitability. While the company reported a narrow GAAP net loss in recent quarters due to restructuring costs, its Adjusted EBITDA rose to $198 million in Q3 2025, with margins improving by 90 basis points.

Regarding fair value, Elanco is trading at the upper end of its 52-week range (around $24.50), but many valuation models still suggest it is undervalued relative to its 2026 earnings potential. With an intrinsic value estimate near $26.18, the stock offers a modest 10% discount for investors looking at the long-term scaling of its high-margin pet health franchise. The company’s focus on the "Elanco Ascend" initiative aims to deliver $200–$250 million in annual EBITDA savings by 2030, further bolstering its value proposition.

Analyst Estimates and Ratings 📊

• Consensus Rating: The consensus among analysts remains a "Buy" or "Moderate Buy." In the last 30 days, 12 analysts have issued buy ratings, citing the company's "no-regrets" product launches as a major catalyst.
• Price Target: The 12-month median price target sits at $25.00, though high-end estimates from firms like Barclays and UBS reach as high as $30.00, suggesting significant upside if the 2026 innovation targets are met.
• Insider Activity: Confidence is high within the company; the CFO recently acquired nearly 7,000 shares in December 2025, a move often viewed by investors as a signal of internal optimism regarding future stock performance.

Investor-Focused Takeaway: Is ELAN Right for Your Portfolio?

Elanco is a "rebound and growth" story. The company has moved past its post-spinoff hurdles and is now entering a phase where its R&D investments are turning into significant cash flow.

What to Watch in the Near Term: 📈

• Product Launch Traction: Monitor the market uptake of Befrena and Zenrelia; their ability to take market share from incumbents like Apoquel will be the primary driver of the 2026 stock price.
• Deleveraging Progress: The company aims to reach a net leverage ratio of <3x by 2027. Success here will likely trigger a re-rating of the stock by institutional investors.
• Innovation Revenue: Watch for the company to hit its $1.1 billion innovation revenue goal in the next fiscal year.

Recommendation:

Elanco (ELAN) is a strong candidate for investors seeking exposure to the high-growth animal health sector. With a robust pipeline of "blockbuster" drugs and improving margins, it offers a blend of defensive stability and growth potential.

Final Take: The Specialized Services Reshaping Modern Medicine

The healthcare evolution isn’t just about hospital beds and headlines—it’s about execution in the field. That requires two things: a clinical bridge that brings high-acuity care to the home and an innovation engine that secures the health of our global animal populations.

That’s where Enhabit (EHAB) and Elanco Animal Health (ELAN) stand apart.

🏠 Enhabit (EHAB) — The Clinical Bridge to Home-Based Care

• ✔ Direct Play on Demographics: Capturing the massive shift toward "hospital-at-home" for an aging US population.
• ✔ Margin Recovery: Transitioning to high-value payer contracts and expanding the high-margin hospice segment.
• ✔ Deep Value: Trading significantly below its intrinsic asset value with a strengthening balance sheet.
• ➤ Best for: Investors seeking a high-moat, value-oriented play on healthcare services with significant recovery upside.

🐾 Elanco Animal Health (ELAN) — The Innovation Engine for Global Vitality

• ✔ "Blockbuster" Pipeline: Scaling six major new products expected to generate over $1 billion in revenue by 2026.
• ✔ Consumer Resilience: Operating in a cash-pay market where pet owners prioritize health spending regardless of economic shifts.
• ✔ Earnings Momentum: Recent double-digit revenue growth and aggressive deleveraging improving the bottom line.
• ➤ Best for: Investors looking for recession-resistant growth fueled by pharmaceutical innovation and global protein demand.

Investor Insight

🧩 Want essential home-care infrastructure with massive value upside? → EHAB

⚙️ Want high-margin biotech innovation in a resilient consumer sector? → ELAN

Bottom Line:

Healthcare doesn’t scale on facilities alone—it scales on clinical reach and biological innovation. Enhabit owns the logistics of the home-care revolution, while Elanco provides the pharmaceutical backbone for the animals we depend on.

As healthcare spending shifts toward efficiency and specialized therapeutics, EHAB and ELAN aren't just niche players—they are foundational to a modern medical portfolio.

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