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Encompass Health (EHC) Gains on Strong Revenues & Cash Flows

·4 min read

Encompass Health Corporation EHC has been aided by improving revenues, growing nationwide portfolio and sound liquidity position from operations. A robust outlook for 2021 also highlights prospects of the stock.

Let’s delve deep into the factors acting as tailwinds for Encompass Health.

Decent Earnings Surprise History: Encompass Health has a decent earnings surprise record. It has surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 5.72%.

Strong 2021 Guidance: The healthcare provider has raised 2021 business outlook backed by strong first-quarter 2021 results and Medicare sequestration suspension being extended till the end of 2021. Net operating revenues are now forecast in the range of $5.06 billion to $5.23 billion, up from the prior guidance of $5-$5.17 billion. The mid-point of the newly provided guidance suggests 10.8% growth from the 2020 reported figure. Also, the same is pegged higher than the Zacks Consensus Estimate of $5.13 billion.

Earnings per share from continuing operations is projected within $3.94-$4.16, higher than the previous guidance of $3.31-$3.53. The mid-point of the revised guidance indicates surge of 40.1% from 2020-end reported figure. The same stands lower than the Zacks Consensus Estimate of $4.16 per share.

Of the medical sector players that reported first-quarter 2021 results, HCA Healthcare, Inc. HCA, Community Health Systems, Inc. CYH and Tenet Healthcare Corporation THC have raised their earnings guidance for 2021.

Sustained Top-Line Growth: Revenues at Encompass Health have witnessed a 10-year CAGR of 8.6%. The momentum continued in first-quarter 2021 results, wherein the top line improved 4.1% year over year. The upside was owing to strong contribution from its Inpatient Rehabilitation segment. Revenue growth is expected in the range of 8% to 10% during the 2020-2025 period.

The company keeps on inaugurating hospitals and adding beds to its existing facilities. All these factors cumulatively have been driving the company’s revenues for quite some time. There are several growth-related initiatives lined up in its pipeline, which the company will pursue over the next two years.

Further, the dire need for high-quality rehabilitation care has been addressed by the company. Patients not only require proper treatment and medication for recovery but also need comprehensive rehabilitation services to ensure the same.

Strong Financial Position: Encompass Health boasts of a solid cash balance of $223.9 million as of Mar 31, 2021. At March-end, the company has nearly $962 million available under its $1 billion revolving credit facility. Also, the long-term debt level of the company has decreased 2.8% in first quarter from 2020-end level.

Moreover, the company has been generating solid cash flows from operations. They can be subsequently used for pursuing growth-related initiatives and returning value to shareholders. Over the 2020-2025 period, the company expects to see a CAGR of 5-7% for adjusted free cash flow.

Further, its leverage ratio has been improving, which came in at 3.5x at first-quarter end. The figure remains lower than the sequential figure of 3.6x. Its times interest earned ratio of 3.7x remains higher than the 2020-end level of 3.6x, indicating the company’s ability to make interest payments.

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Community Health Systems, Inc. (CYH) : Free Stock Analysis Report
 
Tenet Healthcare Corporation (THC) : Free Stock Analysis Report
 
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