An In-Depth Analysis of Encompass Health's (EHC) 2024 Outlook
Encompass Health Corporation EHC recently reiterated some of its 2024 guidance prior to participating in the Barclays Global Healthcare Conference in Miami. It aims for solid growth in revenues and earnings for 2024, supported by operational improvements and capacity additions.
Let’s see how this guidance stacks up compared to estimates and the year-ago period’s figures.
Revenues
Encompass Health expects net operating revenues to be within $5.2-$5.3 billion, the mid-point of which indicates an increase of 9.3% from the 2023 reported figure of $4.8 billion. The Zacks Consensus Estimate for the metric is pegged at $5.26 billion, while our model estimate is pegged at $5.24 billion.
We expect Inpatient revenues and Outpatient and Other revenues to grow 9.2% and 10.3% year over year, respectively, in 2024, boosting the top line. Higher occupancy rates will likely play a major role in the top-line growth. The Zacks Consensus Estimate and our model estimate for the 2024 occupancy rate are pegged at 77.4%, indicating significant growth from 72.1% witnessed in 2023.
Profits
It expects adjusted EBITDA to be in the range of $1,015-$1,055 million in 2024, the midpoint of which suggests 6.6% growth from the 2023 figure of $971.1 million. Our model estimate suggests 8.6% growth in 2024. EHC expects 2024 interest expense and amortization of debt discounts and fees to be within $140 million and $150 million compared to $143.5 million in 2023. Our model estimate indicates the metric to be $146.3 million in 2024.
Adjusted EPS from continuing operations is expected to stay within $3.77-$4.06 range, the mid-point of which implies a 7.6% rise from the 2023 figure of $3.64. The Zacks Consensus Estimate for the metric is pegged at $3.94 per share, implying 8.2% year-over-year growth. Growth in Medicare and Managed Care pricing, along with capacity additions of six de novos with 280 beds, will have an impact on its bottom line.
Importantly, the company beat earnings estimates in each of the past four quarters, the average surprise being 20.1%. This is depicted in the graph below.
Encompass Health Corporation Price and EPS Surprise
Encompass Health Corporation price-eps-surprise | Encompass Health Corporation Quote
Adjusted Free Cash Flow
The company stated during fourth-quarter 2023 earnings that it expects 2024 adjusted free cash flow to be between $465 million and $565 million compared with $525.7 million in 2023. It also expects maintenance capex to be within $185-$195 million in 2024, down from $216.9 million a year ago. EHC anticipates a significant increase in working capital in 2024 triggered by growth in accounts receivable. Also, the timing of payroll and payroll tax liabilities will have an effect on working capital figures.
Zacks Rank & Key Picks
Encompass Health currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Medical space are Universal Health Services, Inc. UHS, The Cigna Group CI and Health Catalyst, Inc. HCAT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Universal Health Services’ 2024 bottom line suggests 19.9% year-over-year growth. UHS has witnessed three upward estimate revisions over the past 30 days against one movement in the opposite direction. It beat earnings estimates in all the last four quarters, with an average surprise of 5.9%.
The Zacks Consensus Estimate for Cigna’s full-year 2024 earnings indicates a 13% year-over-year increase. CI beat earnings estimates in each of the past four quarters, with an average surprise of 2.9%. The consensus mark for revenues predicts 20.4% growth from the year-ago period.
The Zacks Consensus Estimate for Health Catalyst’s 2024 full-year earnings implies a 93.3% increase from the year-ago reported figure. HCAT beat earnings estimates in each of the last four quarters, with an average surprise of 247.9%. The consensus mark for its current-year revenues is pegged at $308 million, which calls for a 4.1% year-over-year increase.
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