Should you invest in a kidney care giant or a growing rehabilitation leader? Choosing between DaVita (DVA +0.04%) and Encompass Health (EHC 2.94%) requires weighing steady patient volumes against higher growth rates.
DaVita focuses exclusively on kidney health, primarily providing life-saving dialysis services. Encompass Health operates a national network of inpatient rehabilitation hospitals for patients recovering from serious injuries or illnesses. Both companies depend heavily on government reimbursement, making them stable but sensitive to policy shifts.
The case for DaVita
DaVita provides essential dialysis services to patients with chronic kidney failure and end-stage renal disease. The company operates a massive network of 3,242 outpatient centers, with a heavy concentration in the United States. Revenue is highly concentrated in government-based programs, which account for roughly 68% of total U.S. dialysis patient service revenue. Customer concentration like this adds a layer of risk to the business, as the company depends on Medicare and Medicare Advantage for a majority of its income.
In FY 2025, revenue reached nearly $13.6 billion, up approximately 6.5% from the previous year. The company reported net income of roughly $746.8 million, resulting in a net margin of close to 5.5%. While the top line continued to expand, net income decreased from approximately $936.3 million recorded in the prior fiscal year. This trend highlights the impact of rising costs on the bottom line for healthcare stocks in the care facility space.
As of its December 2025 balance sheet, the debt-to-equity ratio was -23.1x, which means total liabilities exceed shareholder equity. The current ratio, which measures a company’s ability to pay short-term obligations with short-term assets, stands at approximately 1.3x. Free cash flow for the year was nearly $1.3 billion, calculated by subtracting capital expenditures from cash flow from operations. This level of cash generation provides the company with capital to manage its high debt load and reinvest in its dialysis center infrastructure.
The case for Encompass Health
Encompass Health is the largest owner and operator of inpatient rehabilitation hospitals in the United States. As of the end of 2025, it operated 173 hospitals across 39 states and Puerto Rico, serving patients who require intensive therapy. The company derives a substantial portion of its net operating revenue from the Medicare program, which accounted for approximately 65.4% of total revenues in 2025. This heavy reliance on a single government payor means that changes in federal healthcare policy can significantly impact its financial performance.
During FY 2025, the company generated revenue of approximately $5.9 billion, a growth rate of roughly 10.5% over the prior year. Net income reached close to $566.2 million, yielding a healthy net margin of nearly 9.5%. This represents a steady improvement in profitability compared to FY 2024, when the net margin was approximately 8.5%. The consistent growth in both revenue and net income suggests that the company is successfully expanding its hospital footprint and capturing demand for post-acute care.
As of the December 2025 balance sheet, the debt-to-equity ratio was roughly 1.1x. This metric compares total debt to shareholder equity to show how a company finances its assets. The current ratio was approximately 1.1x, suggesting a tight but functional balance between current assets and liabilities. Free cash flow reached nearly $439.2 million for the year. This cash allows Encompass Health to fund its ongoing hospital expansion projects and maintain its specialized medical equipment without relying solely on external financing.
Risk profile comparison
DaVita faces significant risks related to its dependence on government reimbursement rates and commercial insurance contracts. Profitability is highly sensitive to patient mix, as commercial payors typically pay higher rates than government programs. The company also deals with intense competition for nephrologists to serve as medical directors. Furthermore, a 2025 cybersecurity incident disrupted operations and billing cycles, highlighting the vulnerability of its digital infrastructure. Ongoing labor shortages for skilled clinical personnel also continue to put upward pressure on operating expenses.
Encompass Health is primarily exposed to Medicare reimbursement volatility, including potential sequestration-related payment reductions. The company must also strictly comply with the “60% Rule,” which requires that a majority of patients have specific medical diagnoses to qualify for higher rehabilitation rates. Failure to meet this rule could result in the company being reclassified as an acute-care hospital, leading to significantly lower payments. Encompass Health also faces competition from local acute-care hospitals that may expand their post-acute services to retain patient volume.
Valuation comparison
DaVita currently offers a lower entry point based on earnings and sales, while Encompass Health trades at a premium that reflects its higher growth and margins.
| Metric | DaVita | Encompass Health | Sector Benchmark |
|---|---|---|---|
| Forward P/E | 13.1x | 17.3x | 27.1x |
| P/S ratio | 0.9x | 1.7x |
Sector benchmark uses the SPDR XLV sector ETF.
Valuation metrics sourced from Financial Modeling Prep (FMP) and may differ from other data providers.
Which stock would I buy in 2026?
These two companies address different needs and services in the healthcare industry, and although they have both rewarded their investors in recent quarters, they offer different risk-and-reward profiles. So, which is the better investment for 2026?
DaVita has benefited from increased market share as its rival, Fresenius, closes several dialysis clinics. It also offers Integrated Kidney Care, along with dialysis, which has become profitable faster than expected. It relies on Medicare reimbursement for a large portion of its revenue, and that presents a significant risk. The company’s stock has been priced at a high valuation recently, reflecting its recent performance.
Encompass Health focuses on inpatient rehabilitation hospitals. After a strong first quarter this year, it raised its guidance. It is expanding rapidly and plans to open eight new locations with nearly 600 beds this year. It also relies on Medicare Advantage for a portion of its revenue, but its sensible expansion strategy provides a more predictable opportunity for long-term growth.
Although the demand for kidney care and dialysis is expected to remain steady, so is post-surgical rehabilitation. Encompass Health’s combination of strong execution, expansion, and steady financial performance makes it my choice in this pairing. It appears to offer the most compelling opportunity for attractive returns without excessive risk.