Shares of Encompass Health Corporation EHC gained 6.3% since it reported third-quarter 2024 results on Oct. 28. Strong quarterly results benefited from strong discharges, higher net revenue per discharge, and impressive growth-related initiatives. However, a rise in operating expenses, particularly in salaries and benefits, acted as a partial offset.

EHC reported third-quarter adjusted earnings per share (EPS) of $1.03, which beat the Zacks Consensus Estimate by 9.6%. The bottom line increased 19.8% year over year.

Net operating revenues of $1.4 billion improved 11.6% year over year. The top line beat the consensus mark by 1.7%.

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Encompass Health Corporation Price, Consensus and EPS Surprise

Encompass Health Corporation price-consensus-eps-surprise-chart | Encompass Health Corporation Quote

Q3 Operations

EHC’s net patient revenue per discharge rose 2.5% year over year but fell short of our growth estimate of 3.5%. Total discharges grew 8.8% year over year to 62.7 million, higher than our growth estimate of 61 million. 

Total operating expenses of $1.14 billion escalated 11.1% year over year due to elevated salaries and benefits and other operating expenses. The metric came higher than our estimate of $1.13 billion. 

Net and comprehensive income climbed 29.7% year over year to $147.1 million in the third quarter. 

Adjusted EBITDA of $269.3 million grew 13.4% year over year and surpassed our estimate of $247.1 million.  

Encompass Health added 10 beds to its existing hospitals in the third quarter. It also inaugurated two de novo hospitals.

Financial Update (as of Sept. 30, 2024)

Encompass Health exited the third quarter with cash and cash equivalents of $147.8 million, which more than doubled from the 2023-end level. 

Total assets of $6.5 billion increased 5.8% from the figure at 2023-end. 

Long-term debt, net of the current portion, amounted to $2.7 billion, which declined 12.8% from the figure as of Dec. 31, 2023. The current portion of long-term debt totaled $233 million.

Total shareholders’ equity of $2.7 billion improved 18.4% from the 2023-end figure.

EHC generated $724 million of net cash from operations in the first nine months of 2024, which improved 11.4% from the prior-year comparable period. Adjusted free cash flow rose 15.6% year over year to $499.8 million.

Capital Deployment Update

Encompass Health bought back shares worth $23.6 million in the first nine months of 2024. The company had a leftover capacity of around $498 million under its buyback authorization as of Sept. 30, 2024.

Management paid out a quarterly cash dividend of 17 cents per share.

2024 Outlook Updated

Net operating revenues are currently anticipated to be between $5.325 billion and $5.375 billion, up from the prior guidance of $5.275-$5.35 billion. The mid-point of the revised outlook indicates an improvement of 11.4% from the 2023 reported figure.

Adjusted EBITDA is anticipated to be in the range of $1.07-$1.09 billion, higher than the earlier view of $1.04-$1.075 billion. The mid-point of the updated guidance indicates 11.2% growth from the 2023 figure. 

Adjusted EPS from continuing operations is expected to stay within $4.19-$4.33, up from the prior guided range of $3.97-$4.22. The mid-point of the revised outlook implies a 17% rise from the 2023 figure. 

Adjusted free cash flow is estimated to lie between $560 million and $620 million, up from the earlier range of $495-$580 million. Maintenance capex continues to be anticipated within $185-$195 million.

The company expects to open six de novo hospitals with a total addition of 280 beds. It also expects to add around 110 beds to existing hospitals in 2024.

Growth Targets Reaffirmed

Over the 2023-2027 period, management aims to inaugurate six to 10 de novos each year as well as make bed additions in the range of 80-120 each year. It also aims to witness a CAGR of 6-8% in discharges in the same time frame.

Zacks Rank

Encompass Health currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Medical Sector Releases

Of the Medical sector players that have reported third-quarter 2024 results so far, the bottom-line results of UnitedHealth Group Incorporated UNH, Molina Healthcare, Inc. MOH and Intuitive Surgical, Inc. ISRG beat the Zacks Consensus Estimate.

UnitedHealth Group reported third-quarter adjusted EPS of $7.15, which surpassed the Zacks Consensus Estimate by 1.9%. The bottom line improved 9% year over year. Revenues rose 9.1% year over year to $100.8 billion. The top line beat the consensus mark by 1.3%. Its medical care ratio was 85.2%, which deteriorated 290 bps year over year. UNH’s operating earnings grew 2.4% year over year to $8.7 billion. However, the net margin deteriorated 30 bps year over year to 6%.

Revenues from the health benefits business of UnitedHealth, UnitedHealthcare, rose 7.2% year over year to $74.9 billion. Earnings from operations amounted to $4.2 billion, down 8.7% year over year. Revenues in the Optum business line were $63.9 billion, which rose 12.7% year over year. Optum’s earnings from operations climbed 15.4% year over year to $4.5 billion. The UnitedHealthcare business catered to 50.7 million people as of Sept. 30, 2024, which fell 4% year over year. 

Molina Healthcare’s third-quarter adjusted EPS of $6.01 beat the Zacks Consensus Estimate of $5.96. The bottom line grew 19% from the year-ago period. Total revenues amounted to $10.3 billion, which improved 20.9% year over year. The top line outpaced the consensus mark by 3.8%. Premium revenues of $9.7 billion increased 18% year over year.

As of Sept. 30, 2024, total membership improved 8% year over year to around 5.6 million. Investment income rose 5.4% year over year to $118 million and beat the consensus mark of $117.1 million. The consolidated medical care, or MCR, was 89.2%. The metric rose from 88.7% a year ago. Molina Healthcare’s adjusted net income increased 18% year over year to $347 million.

Intuitive Surgical reported third-quarter adjusted EPS of $1.84, which beat the Zacks Consensus Estimate of $1.65 by 11.5%. The bottom line improved 26% year over year. The company reported revenues of $2.04 billion, up 17% from the prior-year quarter, on a reported, as well as a constant currency basis. The top line also beat the Zacks Consensus Estimate by 1.2%. Revenues from the Instruments & Accessories segment totaled $1.26 billion, indicating a year-over-year improvement of 18%. 

The Systems segment’s revenues totaled $445 million, up 17.4% year over year. Intuitive Surgical shipped 341 da Vinci Surgical Systems compared with 379 in the prior-year quarter. Revenues from the Services segment amounted to $328.9 million, up 3.7% from the year-ago quarter’s level. Adjusted gross profit was $1.41 billion, up 17.3% year over year. Adjusted operating income totaled $754.9 million, up 21% year over year.

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