Encompass Health Corporation Just Missed Earnings - But Analysts Have Updated Their Models
Investors in Encompass Health Corporation (NYSE:EHC) had a good week, as its shares rose 4.6% to close at US$69.72 following the release of its quarterly results. Encompass Health beat revenue expectations by 2.1%, recording sales of US$1.1b. Statutory earnings per share (EPS) came in at US$0.34, some 8.8% short of analyst estimates. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Check out our latest analysis for Encompass Health
Taking into account the latest results, the current consensus from Encompass Health's 13 analysts is for revenues of US$4.70b in 2020, which would reflect an okay 2.1% increase on its sales over the past 12 months. Statutory earnings per share are predicted to increase 4.8% to US$3.04. In the lead-up to this report, the analysts had been modelling revenues of US$4.67b and earnings per share (EPS) of US$3.12 in 2020. The analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share numbers for next year.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$85.79, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Encompass Health, with the most bullish analyst valuing it at US$100.00 and the most bearish at US$70.00 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Encompass Health's revenue growth is expected to slow, with forecast 2.1% increase next year well below the historical 9.5%p.a. growth over the last five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 6.5% next year. So it's pretty clear that, while revenue growth is expected to slow down, the wider industry is also expected to grow faster than Encompass Health.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Encompass Health's revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$85.79, with the latest estimates not enough to have an impact on their price targets.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have forecasts for Encompass Health going out to 2022, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for Encompass Health (1 is significant!) that you should be aware of.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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