Encompass Health (EHC) to Post Q4 Earnings: What's in Store?

Encompass Health Corporation EHC is slated to report fourth-quarter 2023 results on Feb 7, after market close.

What Do the Estimates Say?

The Zacks Consensus Estimate for Encompass Health’s fourth-quarter earnings per share is pegged at 83 cents compared with 88 cents in the year-ago quarter.

The consensus mark for revenues is pegged at $1.2 billion, suggesting 8.8% growth from the year-ago quarter’s reported number.

Encompass Health’s bottom line beat estimates in each of the trailing four quarters, the average surprise being 17.3%. This is depicted in the chart below:

Encompass Health Corporation Price and EPS Surprise

Encompass Health Corporation Price and EPS Surprise

Encompass Health Corporation price-eps-surprise | Encompass Health Corporation Quote

Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at EHC’s third-quarter performance.

Q3 Earnings Rewind

Encompass Health reported third-quarter 2023 adjusted earnings per share (EPS) of 86 cents, which surpassed the Zacks Consensus Estimate by 11.7%. The quarterly results were aided by improved patient volumes, higher net patient revenue per discharge and strong discharge growth. Nevertheless, the upside was partly offset by escalating salaries and benefits expenses.

Now, let’s see how things have shaped up before the fourth-quarter earnings announcement.

Factors to Note

In the fourth quarter, the top line of Encompass Health is expected to have benefited from growing volumes, a year-over-year decrease in labor costs and improved pricing in Medicare and Managed Care. However, holiday coverage might have led to an increase in labor costs, partially offsetting the improvement from lower contract labor utilization. Strong contributions from inpatient and outpatient services are expected to have provided an impetus to EHC’s quarterly performance.

Results of the Inpatient Rehabilitation unit are expected to have benefited on the back of sustained demand for its services, which, in turn, are likely to have attracted more customers and led to an increase in admissions. Growing demand for inpatient care and an improved patient conversion rate are expected to have benefited the results. The Zacks Consensus estimate and our estimate imply growth of 8.8% and 8.4% year over year, respectively, in inpatient revenues in the fourth quarter of 2023.

The company’s continued efforts to add beds to its hospitals and open new de novo facilities are expected to have increased revenues in the fourth quarter. It aims to add two new de novos and five beds to existing hospitals in the to-be-reported quarter. The Zacks Consensus Estimate and our estimate both suggest an increase of 4.3% year over year in the number of licensed beds for the fourth quarter of 2023.

Various collaborations in the fourth quarter are expected to have fueled the results. Moreover, as the company aims to expand its reach to Medicare Advantage customers, the patient mix is expected to have improved in the fourth quarter.

However, Encompass Health’s margins are expected to have taken a hit from higher operating expenses in the to-be-reported quarter. We expect total operating expenses to increase 11.3% year over year.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Encompass Health this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, this is not the case here, as elaborated below.

Earnings ESP: Encompass Health has an Earnings ESP of 0.00%. The Most Accurate Estimate is pegged at 83 cents, in line with the Zacks Consensus Estimate. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.

Zacks Rank: EHC currently carries a Zacks Rank of 2.

Stocks to Consider

While an earnings beat looks uncertain for Encompass Health, here are some companies from the broader Medical space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:

GoodRx Holdings, Inc. GDRX has an Earnings ESP of +15.91% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for GoodRx’s bottom line for the to-be-reported quarter is pegged at 7 cents per share, which has remained stable over the past week. The consensus mark for GDRX’s revenues is pegged at $193.9 million, signaling 5.3% year-over-year growth.

Globus Medical, Inc. GMED has an Earnings ESP of +1.85% and a Zacks Rank #3.

The Zacks Consensus Estimate for Globus Medical’s bottom line for the to-be-reported quarter is pegged at 59 cents per share, which has witnessed four upward revisions over the past month against none in the opposite direction. GMED beat earnings estimates in each of the past four quarters, with an average surprise of 5.4%.

Arvinas, Inc. ARVN has an Earnings ESP of +17.19% and is a Zacks #2 Ranked player.

The Zacks Consensus Estimate for Arvinas’ earnings per share for the to-be-reported quarter indicates an 18% year-over-year improvement. ARVN beat earnings estimates in two of the past four quarters and missed on the other occasions.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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