Encompass Health's (EHC) Q2 Earnings Beat, '23 EPS View Raised
Shares of Encompass Health Corporation EHC have gained 5.1% since it reported better-than-expected second-quarter earnings on Aug 1. 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.
EHC 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%.
Encompass Health Corporation Price, Consensus and EPS Surprise
Encompass Health Corporation price-consensus-eps-surprise-chart | Encompass Health Corporation Quote
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.
Zacks Rank
Encompass Health currently carries a Zacks Rank #2 (Buy). 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 have reported second-quarter 2023 results so far, the bottom-line results of The Ensign Group, Inc. ENSG, Tenet Healthcare Corporation THC and Humana Inc. HUM beat the respective Zacks Consensus Estimate.
Ensign Group reported second-quarter 2023 adjusted operating EPS of $1.16, which outpaced the Zacks Consensus Estimate by 1.8%. The bottom line climbed 14.9% year over year. Operating revenues amounted to $921.4 million, which rose 25.8% year over year in the quarter under review. The top line beat the consensus mark by 1.3%. ENSG reported an adjusted net income of $66.3 million in the second quarter, which improved 15.4% year over year. Same-store occupancy grew 4.0% year over year, while transitioning occupancy increased 3.3% year over year.
Tenet Healthcare’s second-quarter 2023 adjusted earnings of $1.44 per share beat the Zacks Consensus Estimate by 14.3%. However, the bottom line decreased 2.7% year over year. Net operating revenues of THC amounted to $5,082 million, which improved 9.6% year over year in the quarter under review. The top line outpaced the consensus mark by 3.7%. Adjusted EBITDA, excluding grant income, advanced 11.5% year over year to $835 million. The Hospital Operations and Other segment’s net operating revenues rose 7.6% year over year to $3,922 million in the second quarter.
Humana reported second-quarter 2023 adjusted EPS of $8.94, which beat the Zacks Consensus Estimate by a whisker. The bottom line grew 2.1% year over year. HUM’s adjusted revenues advanced 14.2% year over year to $25,733 million. Yet, the top line missed the consensus mark by a whisker. Total premiums of Humana amounted to $25,495 million, which improved 14.5% year over year in the second quarter. Investment income of $274 million increased nearly six-fold year over year in the quarter under review. The benefits expense ratio came in at 86.3%, which deteriorated 50 basis points year over year.
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