Encompass Health (EHC) Up 2.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Encompass Health (EHC). Shares have added about 2.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Encompass Health due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Encompass Health's Q2 Earnings Beat, '23 EPS View Raised
Encompass Health reported second-quarter 2023 adjusted EPS of 95 cents, which outpaced the Zacks Consensus Estimate by 28.4%. The bottom line soared 50.8% year over year.
Net operating revenues amounted to $1,187.1 million, which improved 11.7% year over year. The top line beat the consensus mark by 2%.
The quarterly results benefited on the back of expanding patient volumes and solid discharge growth. A hiked earnings per share (EPS) guidance for 2023 is likely to have provided some respite to investors. Nevertheless, the upside was partly offset by an elevated expense level.
Q2 Operations
Net patient revenue per discharge of Encompass Health increased 2% year over year in the quarter under review. Our estimate indicated the metric to witness 1.5% year-over-year growth. Total discharges advanced 9.8% year over year, while our estimate suggested the metric to rise 7.4%.
Total operating expenses escalated nearly 10% year over year to $1,003.2 million, higher than our estimate of $983 million. The increase was due to higher salaries and benefits, supplies and, general and administrative expenses.
EHC’s net and comprehensive income of $117.2 million surged 64.4% year over year in the second quarter.
Adjusted EBITDA climbed 27.1% year over year to $249.6 million, higher than our estimate of $217.8 million. The growth came on the back of higher revenues coupled with lower contract labor expenses as well as sign-on and shift bonuses.
Financial Update (as of Jun 30, 2023)
Encompass Health exited the second quarter with cash and cash equivalents of $117.5 million, which increased more than five-fold from the figure at 2022 end.
Total assets of $5,860.9 million increased 4% from the 2022-end level.
Long-term debt, net of current portion, came in at $2,697.6 million, which dipped 1.6% from the figure as of Dec 31, 2022. The current portion of long-term debt stood at $22.8 million.
Total shareholders’ equity of $2,017.7 million improved 10.5% from the figure at 2022 end.
In the reported quarter, EHC generated operating cash flow of $206.7 million, which fell 15.5% year over year. Adjusted free cash flow of $124.2 million decreased 13.9% year over year.
2023 Outlook Revised
Net operating revenues are currently estimated to lie between $4,750 million and $4,810 million, higher from the previous outlook of $4,700-$4,770 million. The midpoint of the updated guidance indicates an improvement of 9.9% from the 2022 reported figure.
Adjusted EBITDA is anticipated within $920-$950 million in 2023, up from the prior guidance of $870-$910 million. The midpoint of the revised outlook suggests 14.1% growth from the 2022 figure.
Adjusted EPS from continuing operations is forecasted to lie between $3.31 and $3.53, higher than the prior view of $2.94-$3.23. The midpoint of the revised outlook implies an 20% rise from the 2022 figure.
Maintenance and discretionary capital expenditures for 2023 were expected to stay in line with the 2022 level.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
Currently, Encompass Health has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Encompass Health has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Encompass Health is part of the Zacks Medical - Outpatient and Home Healthcare industry. Over the past month, Amedisys (AMED), a stock from the same industry, has gained 1.6%. The company reported its results for the quarter ended June 2023 more than a month ago.
Amedisys reported revenues of $552.97 million in the last reported quarter, representing a year-over-year change of -0.9%. EPS of $1.37 for the same period compares with $1.47 a year ago.
Amedisys is expected to post earnings of $1.08 per share for the current quarter, representing a year-over-year change of -6.1%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.9%.
Amedisys has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Encompass Health Corporation (EHC) : Free Stock Analysis Report
Amedisys, Inc. (AMED) : Free Stock Analysis Report
