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Why Is Encompass Health (EHC) Up 0.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Encompass Health (EHC). Shares have added about 0.3% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Encompass Health Q1 Earnings Beat, Hikes '21 View

Encompass Health reported first-quarter 2021 adjusted earnings of $1.05 per share, which outpaced the Zacks Consensus Estimate by 31.3%. Further, the bottom line improved 20.7% year over year.

The company’s results reflect higher revenues across its Inpatient Rehabilitation segment, partly offset by elevated operating expenses.

Operational Update

The company’s net operating revenues improved 4.1% year over year to $1.2 billion in the quarter. The top line benefited from favorable pricing, partly offset by reduced volumes across both the Inpatient Rehabilitation, and Home Health and Hospice segments. The top line also surpassed the Zacks Consensus Estimate by 0.2%.

Adjusted EBITDA climbed 10% year over year to $250.8 million in the quarter.

Total operating expenses increased 2.1% year over year to $1 billion primarily due to higher salaries and benefits, other operating expenses, supplies and, depreciation and amortization. General and administrative expenses, excluding stock-based compensation, increased 22.5% year over year to $34.9 million.

Segmental Results

Inpatient Rehabilitation

The segment’s revenues of $959.9 million advanced 5.6% year over year courtesy of 5.9% growth in revenues from Inpatient business. The Inpatient business was buoyed by favorable pricing, partly offset by lower volumes. However, the increase in the segment’s revenues was partially offset by 8.3% drop in revenues from Outpatient and other business. Adjusted EBITDA improved 9% year over to $234.9 million attributable to higher revenues.

Home Health and Hospice

Its worth mentioning that the company is looking for strategic alternatives for this segment.

Revenues at the segment dipped 0.8% year over year to $270.5 million in the quarter mainly due to 2.2% decline in revenues from Home Health sub-segment. The sub-segment was affected by lower episodic admissions. Nevertheless, the decline was partly mitigated by 5.4% rise in Hospice sub-segment revenues driven by rise in same-store admissions. Adjusted EBITDA of $50.8 million rose 23.9% year over year in the quarter.

Financial Update

As of Mar 31, 2021, Encompass Health’s cash and cash equivalents of $223.9 million remained unchanged from 2020-end figure. Long-term debt, net of current portion as of Mar 31, 2021, declined 2.8% to $3.2 billion from the level at 2020 end.

In the first quarter, adjusted free cash flow climbed 44% year over year to $107.4 million.

2021 Guidance Updated

For the current year, management anticipates net operating revenues to be $5.06-$5.23 billion higher than the previous guidance of $5-$5.17 billion. In 2021, the company’s adjusted EBITDA is expected to lie in the range of $1 billion to $1.03 billion, up from the prior guidance of $925-$955 million.

Adjusted earnings per share from continuing operations is expected to be $3.94-$4.16 in 2021, higher than the previous guidance of $3.31-$3.53.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 18.67% due to these changes.

VGM Scores

Currently, Encompass Health has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 #2 (Buy). We expect an above average return from the stock in the next few months.


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