It has been about a month since the last earnings report for Encompass Health (EHC Quick QuoteEHC - Free Report) . Shares have added about 6.5% in that time frame, outperforming 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's Q4 Earnings Miss Mark, Increase Y/Y

Encompass Health delivered fourth-quarter 2021 adjusted earnings of 97 cents per share, which missed the Zacks Consensus Estimate by 8.5%. Nevertheless, the bottom line climbed 4.3% year over year.

EHC’s results gained from improved revenues, driven by a strong performance of its Inpatient Rehabilitation segment, partly offset by COVID-linked headwinds troubling the Home Health and Hospice segment, and escalating costs.

The year 2021 saw double-digit growth in revenues and an impressive adjusted EBITDA.

Behind the Headlines

EHC’s net operating revenues advanced 8.6% year over year to $1.3 billion in the fourth quarter, courtesy of solid discharge growth and favorable pricing in the inpatient rehabilitation segment. The top line also beat the consensus mark by 1.1%.

Adjusted EBITDA of $252.7 million rose 5.3% year over year in the quarter under review.

Total operating expenses of $1.1 billion increased 11.5% year over year due to higher salaries and benefits, other operating costs, general and administrative expenses.

General and administrative expenses excluding stock-based compensation increased 7.7% year over year to $36.2 million in the fourth quarter. This doesn’t include expenses related to the strategic alternatives review of its home health and hospice business.

Segmental Results

Inpatient Rehabilitation

Revenues at the segment amounted to $1 billion, which improved 11.7% year over year. This growth came on the back of an 11 % rise in revenues from the inpatient business, riding on favorable pricing and volume growth. The segment’s revenue growth was also driven by the 50.5% surge in outpatient and other business revenues.

Growth in net patient revenue per discharge of 1.2% primarily resulted from increased reimbursement rates, partially offset by payor mix (faster growth in Managed Care and Medicare Advantage).

Adjusted EBITDA grew 8.4% year over year to $236.3 million in the fourth quarter, attributable to improved revenues.

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. It plans to complete the transaction in the first half of the current year.

Coming back to the fourth quarter, the segment’s revenues of $276.1 million dipped 1.8% year over year due to a 1.6% drop in revenues at the Home Health sub-unit and a 2.8% slip in Hospice business.

In this segment, EHC witnessed its home health total admissions and same- store total admissions grow 4.7% and 2.4% year over year, respectively.

Adjusted EBITDA declined 5.2% year over year to $52.6 million in the  fourth quarter due to higher costs of services associated with industry-wide staffing challenges.

Financial Update (as of Dec 31, 2021)

Encompass Health exited 2021 with cash and cash equivalents of $54.8 million, down 75.5% from the 2020-end figure.

Total assets of $6.86 billion increased 6.5% from the level at 2020 end.

Its long-term debt, net of current portion totaled $3.2 billion, which slid 0.2% from the figure as of Dec 31, 2020.

Adjusted free cash flow of $61.7 million was down 71% year over year.

2022 Outlook

EHC considered the existing business structure while providing guidance.

This year, management anticipates net operating revenues within $5.38-$5.50 billion.

Adjusted EBITDA is projected in the range of $1.015-$1.065 billion for 2022.

Adjusted earnings per share from continuing operations are forecast between $3.83 and $4.19 for the current year.

2021 Results

Revenues of Encompass Health for the year increased 10.3% year over year. Net income came in at $412.2, up 45% year over year. Earnings per share of EHC came in at $4.23 per share, up 46.4% year over year. Adjusted EBITDA for the full year rose 19.5% year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -11.43% due to these changes.

VGM Scores

Currently, Encompass Health has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Encompass Health has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.