It has been about a month since the last earnings report for Encompass Health (
EHC Quick Quote EHC - Free Report) . Shares have lost about 9.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Encompass Health's Q4 Earnings Beat Estimates
Encompass Health reported fourth-quarter 2022 adjusted earnings per share (EPS) of 88 cents, which outpaced the Zacks Consensus Estimate by 3.5%. The bottom line climbed 31.3% year over year.
Net operating revenues of $1,137.3 million improved 9.1% year over year in the quarter under review. The top line beat the consensus mark by 1.5%.
The strong results stemmed from higher revenue growth resulting from patient volumes and price increases. An optimistic guidance for 2023 might have also instilled investors’ confidence in the stock.
Net patient revenues per discharge grew 2.2% year-over-year increase on the back of improved reimbursement rates. Total discharges advanced 7.3% year over year.
Total operating expenses of Encompass Health escalated 7.4% year over year to $957.6 million in the fourth quarter due to higher salaries and benefits, supplies and other operating costs.
Net and comprehensive income of $117.5 million inched up 1.6% year over year. Adjusted EBITDA rose 16.4% year over year to $232.7 million in the quarter under review. The improvement can be attributed to growing revenues coupled with reduced usage of contract labor. Financial Update (as of Dec 31, 2022)
Encompass Health exited the fourth quarter with cash and cash equivalents of $21.8 million, which plunged 55.9% from the 2021-end level. Total assets of $5,636.5 million fell 17.9% from the figure in 2021 end.
Long-term debt, net of the current portion, amounted to $2,741.8 million. The figure declined 15.4% from the figure as of Dec 31, 2021. The current portion of long-term debt came in at $25.2 million. Total shareholders’ equity of $1,826.3 million dropped 22.5% from the 2021-end level. In the fourth quarter, the net operating cash flows of Encompass Health climbed 39.1% year over year to $172.2 million. Adjusted free cash flow of $46 million soared 63.1% year over year. 2023 View
Management forecasts net operating revenues to lie between $4,680 million and $4,760 million, the mid-point of which indicates an improvement of 8.5% from the 2022 reported figure of $4,348.6 million.
Adjusted EBITDA is anticipated between $860 and $900 million in 2023, the mid-point of which suggests 7.4% growth from the 2022 figure of $819.3 million. Adjusted EPS from continuing operations is estimated to lie in the range of $2.87-$3.16, the mid-point of which implies a 5.8% rise from the 2022 reported figure of $2.85. Encompass Health intends to inaugurate eight hospitals this year. It targets to add 80-120 beds on an annual basis. In 2023, maintenance and discretionary capital expenditures are expected to stay in line with the 2022 level. How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -8.14% due to these changes.
Currently, Encompass Health has an average Growth Score of C, though it is lagging a bit 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Encompass Health has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.