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Encompass Health (EHC) Q4 Earnings Beat Estimates, Rise Y/Y

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·5 min read
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Encompass Health Corporation EHC reported fourth-quarter 2020 adjusted earnings of 93 cents per share, which beat the Zacks Consensus Estimate by 8.1%. The bottom line also improved 9.4% year over year primarily owing to higher revenues and lower costs. However, shares of the company suffered a decline of 4.1% on Jan 27 due to a fall in broader markets.

Operational Update

The company’s operating revenues of $1.2 billion not only surpassed the Zacks Consensus Estimate by 0.6% but also improved 2.5% year over year. The top line was driven by favorable pricing in the inpatient rehabilitation segment.

The revenue growth was partly offset by lower volumes in both the inpatient rehabilitation, and home health and hospice segments coupled with a pricing decrease in the latter segment.

Adjusted EBITDA of $239.9 million inched up 0.7% year over year.

General and administrative expenses, excluding stock-based compensation, declined 7.9% year over year to $33.6 million. The decline can be attributed to reduced costs related to incentive compensation.

Encompass Health Corporation Price, Consensus and EPS Surprise

Encompass Health Corporation Price, Consensus and EPS Surprise
Encompass Health Corporation Price, Consensus and EPS Surprise

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

Segmental Results

Inpatient rehabilitation

The segment’s revenues of $933.1 million were up 4.1% year over year attributable to a 4.7% uptick in revenues from Inpatient business. However, the increase was partially offset by a decline of 21.6% in revenues from Outpatient and other business.

While the Inpatient business benefited from favorable pricing, the Outpatient and other business was hurt by addition of business interruption insurance recoveries worth $2.5 million in fourth-quarter 2019 stemming from Hurricane Michael and temporary suspension of hospital-based outpatient services in 2020 due to the COVID-19 pandemic.

Adjusted EBITDA of $218 million decreased 3.2% year over year due to higher bad debt expense, group medical expense and usage of personal protective equipment.

Home Health and Hospice

Revenues at this segment amounted to $281.3 million. The figure was down 2.2% year over year due to 3.9% lower revenues from Home Health sub-segment. It is worth mentioning that the company is looking for strategic alternatives for this segment. Nevertheless, the decline was partly mitigated by 5.5% growth in Hospice sub-segment. While the Home Health business suffered a blow due to lower episodic admissions, the Hospice business gained momentum from rise in same-store admissions.

Adjusted EBITDA of $55.5 million improved 11.9% year over year courtesy of higher cost per visit, which resulted from changes implemented in the clinician compensation model changes in May 2020.

Financial Update

As of Dec 31, 2020, Encompass Health’s cash and cash equivalents totaled $224 million, which more than doubled from the level at 2019 end.

As of Dec 31, 2020, its long-term debt, net of current portion increased 7.5% to $3.3 billion from the level at 2019 end.

Adjusted free cash flow in the fourth quarter surged 55.6% year over year to $213 million.

Full-Year Update

For 2020, operating revenues totaled $4.6 billion, which inched up 0.9% year over year. Full-year adjusted earnings per share was $2.89, which plunged 26.1% year over year.

Adjusted free cash flow of the year improved 12.3% year over year to $579.9 million.

Following the company’s fourth-quarter results, Encompass Health issued its guidance for 2021. It also unveiled long-term growth targets for 2020 through 2025. Since no final decision related to the home health and hospice business has been arrived at yet, the company has presumed with the existing business structure while laying down expectations.

Guidance for 2021

Net operating revenues for the current year is projected in the range of $5 billion to $5.2 billion.

While adjusted earnings per share from continuing operations is forecasted to be $3.31-$3.53 for 2021, adjusted EBITDA is expected to lie in the range of $925-$955 million.

Long-Term Growth Expectations

Over the 2020-2025 period, both net operating revenues and adjusted EBITDA are expected to witness a CAGR of 8-10% each. Also, adjusted free cash flow are anticipated to see a CAGR of 5-7% during the same time period.

Zacks Rank

Encompass Health currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the medical sector players that reported fourth-quarter results so far, the bottom line of UnitedHealth Group Incorporated UNH beat the Zacks Consensus Estimate.

Upcoming Releases

Here are some companies worth considering from the healthcare sector as our model shows that these have the right combination of elements to beat on earnings this reporting cycle:

Alexion Pharmaceuticals, Inc. ALXN has an Earnings ESP of +12.29% and a Zacks Rank #2 (Buy), presently.

Tenet Healthcare Corporation THC has an Earnings ESP of +7.10% and a Zacks Rank of 2, currently.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Alexion Pharmaceuticals, Inc. (ALXN) : Free Stock Analysis Report

Tenet Healthcare Corporation (THC) : Free Stock Analysis Report

Encompass Health Corporation (EHC) : Free Stock Analysis Report

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