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Encompass Health (EHC) Down 4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Encompass Health (EHC - Free Report) . Shares have lost about 4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Encompass Health due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Encompass Health Beats on Q2 Earnings, Hikes '21 View

Encompass Health reported second-quarter 2021 adjusted earnings of $1.17 per share, which beat the Zacks Consensus Estimate by 15.8%. The bottom line increased to nearly four-fold on a year-over-year basis. The company’s results benefited from growing revenues stemming from Inpatient Rehabilitation, and Home Health and Hospice segments, partly offset by high operating costs.

Quarterly Operational Update

The company’s net operating revenues of $1.3 billion climbed 19.9% year over year attributable to higher volumes and favorable pricing. The top line outpaced the Zacks Consensus Estimate by 1.5%.

Adjusted EBITDA soared 71.9% year over year to $278.9 million in the quarter under review.

Total operating expenses of $1.1 billion escalated 9.6% year over year primarily due to rise in salaries and benefits, other operating expenses, and depreciation and amortization. General and administrative expenses, excluding stock-based compensation, increased 11.2% year over year to $36.8 million due to improved revenue base.

Segmental Results

Inpatient Rehabilitation

Revenues at the segment climbed 21.5% year over year to $1 billion in the second quarter. The growth can be attributed to 20.9% rise in revenues from Inpatient business, which was driven by favorable pricing and higher volumes. A 49.7% surge in revenues from Outpatient and other business contributed to the segment’s revenue growth. Adjusted EBITDA of $254 million advanced 40.9% year over in the quarter under review.

Home Health and Hospice

The segment, for which Encompass Health is looking for strategic alternatives, reported 14.6% growth in revenues attributable to Home Health and Hospice sub-segments. Home Health's sub-unit’s revenues of $232.3 million improved 15.1% year over year in the quarter driven by higher admissions. Meanwhile, the same for Hospice sub-segment rose 12.6% year over year to $53.8 million in the quarter under review. Adjusted EBITDA increased to more than four-fold in the quarter to $61.7 million.

Financial Update

Encompass Health exited the second quarter with cash and cash equivalents of $73.2 million, which plunged to three-fold from the figure at 2020 end.

As of Jun 30, 2021, the company’s long-term debt, net of current portion amounted to $3.1 billion, down 4.5% from 2020-end level.

In the second quarter, adjusted free cash flow improved 22.2% year over year to $205.6 million.

Revised 2021 Outlook

Management projects net operating revenues in the range of $5.1 billion to $5.25 billion, up from the prior outlook of $5.06-$5.23 billion.

Adjusted earnings per share from continuing operations is forecast between $4.32 and $4.47 in 2021, up from the prior outlook of $3.94-$4.16.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 6.06% due to these changes.

VGM Scores

Currently, Encompass Health has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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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