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Why Encompass Health (EHC) is Down 2.4% Since Q1 Earnings Beat

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Encompass Health Corporation EHC shares have dipped 2.4% since it reported first-quarter 2022 results on Apr 27. Despite better-than-expected earnings, elevated staffing costs remain a woe. The staffing challenges are not expected to die down anytime soon. Even though management expects 2022 revenues to increase from the year-ago levels, adjusted operating earnings are expected to take a significant dip, which concerns investors.

Let’s delve deeper.

Q1 Results

EHC delivered first-quarter 2022 adjusted earnings of 97 cents per share, which beat the Zacks Consensus Estimate of 93 cents. Nevertheless, the bottom line declined 7.6% year over year.

Encompass Health’s net operating revenues advanced 8.4% year over year to $1,333.6 million in the first quarter. The top line also beat the consensus mark of $1,318 million.

The better-than-expected first-quarter results were supported by volume growth in Inpatient Rehabilitation and Home Health and Hospice businesses. While favorable pricing aided EHC’s Inpatient Rehabilitation unit, rising total admissions positively impacted its Home Health operations. The positives were partially offset by rising operating expenses and increased staffing costs.

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

Behind the Headlines

Adjusted EBITDA of $245 million declined 2.3% year over year in the quarter under review.

Total operating expenses of $1,149.7 million increased from $1,022.7 million a year ago due to higher salaries and benefits, other operating costs, general and administrative expenses. General and administrative expenses excluding stock-based compensation decreased 10.3% year over year to $31.3 million in the first quarter. This doesn’t include expenses related to the strategic alternative review of its home health and hospice business.

Segmental Results

Inpatient Rehabilitation

Revenues at the segment amounted to $1,059.3 million, which improved 10.4% year over year. This growth came on the back of a 10% rise in revenues from the inpatient business, riding on favorable pricing and volume growth. The segment’s revenue growth was also driven by the 31.3% surge in outpatient and other business revenues.

Growth in net patient revenue per discharge of 2.2% primarily resulted from increased reimbursement rates.

Adjusted EBITDA declined 3.7% year over year to $226.2 million in the first quarter, attributable to higher utilization and costs related to increased patient volume.

Home Health and Hospice

Encompass Health announced that it is looking forward to spin-off its home health and hospice business to create an independent, publicly-traded company and rebrand the HH&H Business as Enhabit Home Health & Hospice. EHC anticipates the spin-off to be effectuated on Jul 1.

In the first quarter, the segment’s revenues of $274.3 million increased 1.4% year over year owing to a 2.3% rise in revenues at the Home Health sub-unit, partially offset by a 2.4% slip in Hospice business.

In this segment, EHC witnessed its home health total admissions and same-store total admissions grow 4.9% and 0.9% year over year, respectively. However, total admissions in its Hospice business witnessed a 2.5% year-over-year decline.

Adjusted EBITDA declined 1.4% year over year to $50.1 million in the first quarter due to higher costs of services associated with increased labor expenses.

Financial Update (as of Mar 31, 2022)

Encompass Health exited first-quarter 2022 with cash and cash equivalents of $94.2 million, up from the 2021-end figure of $54.8 million. Total assets of $6,944 million increased from $6,864.9 million at 2021 end.

Its long-term debt, net of current portion, totaled $3,221.3 million, which dropped from $3,243.9 million as of Dec 31, 2021. The current portion of long-term debt was recorded at $42.8 million.

Net operating cash flow was recoded at $218.9 million, up from $158.5 million a year ago. Adjusted free cash flow of $165.9 million was up 54.5% year over year.

2022 Outlook

EHC considered the existing business structure while reiterating its guidance.

This year, management anticipates net operating revenues within $5,380-$5,500 million, up from $5,122 million in 2021. Adjusted EBITDA is projected in the range of $1,015-$1,065 million for 2022. The metric came in at $1,028 million in 2021. Adjusted earnings per share from continuing operations are forecast between $3.83 and $4.19 for the current year, down from $4.23 in 2021. This indicates weakness in operations.

Encompass Health intends to open eight additional de novo locations this year and increase the bed count. Further it expects adjusted free cash flow of $405 to $555 million for 2022. The 2021 figure was reported to be $498.8 million.

Companies Expected to Beat Estimates

While Encompass Health, which currently carries a Zacks Rank #3 (Hold), beat on earnings this time around, here are also some other companies worth considering from the Medical space with the right combination of elements to beat on earnings this season:

Angion Biomedica Corp. ANGN has an Earnings ESP of +26.44% and a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Angion Biomedica’s bottom line for the to-be-reported quarter indicates a 53.2% rise from the year-ago quarter’s reported figure.

ANGN’s earnings beat estimates in three of the last four quarters and missed the mark once, the average surprise being 47.5%.

Landos Biopharma, Inc. LABP currently has an Earnings ESP of +4.70% and a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for Landos Biopharma’s bottom line for the to-be-reported quarter indicates a 2.6% improvement from the year-ago quarter’s reported figure.

LABP’s earnings beat estimates in two of the last four quarters, met the same once and missed the mark on the remaining occasion, the average surprise being 34.9%.

Ascendis Pharma A/S ASND has an Earnings ESP of +17.62% and is a Zacks #3 Ranked player, presently.

The earnings estimate for Ascendis Pharma’s to-be-reported-quarter bottom line has witnessed three northward estimate revisions in the past 60 days against one southbound movement.

ASND’s earnings beat estimates in three of the last four quarters and missed the mark once, the average surprise being 18.1%.


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