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Encompass Health (EHC) Stock Down 6% Despite Q2 Earnings Beat
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Encompass Health Corporation (EHC - Free Report) shares declined 5.6% since it reported second-quarter 2024 results on Aug 5. Despite robust patient volumes, strong discharges and impressive growth-related initiatives, investors might be concerned regarding elevated operating expenses, particularly in salaries and benefits, which are likely to have strained the company’s profitability.
EHC reported second-quarter adjusted earnings per share (EPS) of $1.11, which beat the Zacks Consensus Estimate by 9.9%. The bottom line advanced 16.8% year over year.
Net operating revenues of $1.3 billion improved 9.6% year over year. However, the top line missed the consensus mark by 0.3%.
Encompass Health Corporation Price, Consensus and EPS Surprise
EHC’s net patient revenue per discharge rose 2% year over year but fell short of our growth estimate of 2.3%. Total discharges grew 6.7% year over year to 60.83 million, higher than our growth estimate of 60.75 million.
Total operating expenses of $1.09 billion escalated 8.2% year over year due to elevated salaries and benefits and other operating expenses. The metric came lower than our estimate of $1.11 billion.
Net and comprehensive income climbed 25% year over year to $146.5 million in the second quarter.
Adjusted EBITDA of $271.8 million grew 8.9% year over year and surpassed our estimate of $263.1 million.
Encompass Health added 24 beds to its existing hospitals in the second quarter. It also inaugurated three de novo hospitals and one satellite hospital.
Financial Update (as of Jun 30, 2024)
Encompass Health exited the second quarter with cash and cash equivalents of $154.4 million, which more than doubled from the 2023-end level.
Total assets of $6.4 billion increased 4.7% from the figure at 2023-end.
Long-term debt, net of the current portion, amounted to $2.7 billion, which dipped marginally from the figure as of Dec 31, 2023. The current portion of long-term debt totaled $32.5 million.
Total shareholders’ equity of $2.5 billion advanced 10% from the 2023-end figure.
EHC generated $217.4 million of net cash from operations in the second quarter, which improved 5.2% from the prior-year comparable period. Adjusted free cash flow rose 14.7% year over year to $142.5 million.
Capital Deployment Update
Encompass Health recommenced share buybacks and bought back shares worth $16.8 million in the second quarter. The company had a leftover capacity of around $181 million under its buyback authorization as of Jun 30, 2024. Management approved an increase in common stock repurchase authorization to $500 million.
Management paid out a quarterly cash dividend of 15 cents per share.
2024 Outlook Updated
Net operating revenues are currently anticipated to be between $5.275 billion and $5.35 billion, up from the prior guidance of $5.25-$5.325 billion. The mid-point of the revised outlook indicates an improvement of 10.7% from the 2023 reported figure.
Adjusted EBITDA is anticipated to be in the range of $1.04-$1.075 billion, higher than the earlier view of $1.03-$1.065 billion. The mid-point of the updated guidance indicates 8.9% growth from the 2023 figure.
Adjusted EPS from continuing operations is expected to stay within $3.97-$4.22, up from the prior guided range of $3.86-$4.11. The mid-point of the revised outlook implies a 12.5% rise from the 2023 figure.
Adjusted free cash flow is estimated to lie between $495 million and $580 million, up from the earlier range of $475-$570 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.
Of the Medical sector players that have reported second-quarter 2024 results so far, the bottom-line results of Acadia Healthcare Company, Inc. (ACHC - Free Report) , Humana Inc. (HUM - Free Report) and The Cigna Group (CI - Free Report) beat the respective Zacks Consensus Estimate.
Acadia Healthcare reported adjusted second-quarter earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 3.4%. However, the bottom line dipped 1.1% year over year. Total revenues advanced 8.8% year over year to $796 million. The top line outpaced the consensus mark by 1.5%. Same-facility revenues of $776.1 million rose 8.3% year over year. The year-over-year improvement was driven by 5.6% growth in revenue per patient day and a 2.6% increase in patient days.
Admissions inched up 0.7% year over year. The average length of stay grew 1.8% year over year but missed our growth estimate of 2%. In the overall facility, patient days advanced 2.6% year over year while admissions inched up 1% year over year. Revenue per patient day improved 6.1% year over year. The average length of stay rose 1.6% year over year. Adjusted EBITDA climbed 7.6% year over year to $187.6 million. Adjusted EBITDA margin remained flat year over year at 29.5%.
Humana posted second-quarter adjusted EPS of $6.96, which surpassed the Zacks Consensus Estimate by 18.2%. However, the bottom line fell 22.1% year over year. Adjusted revenues improved 14.2% year over year to $29.4 billion. The top line beat the consensus mark by 2.6%. Humana’s total premiums of $28.1 billion advanced 10.4% year over year. Services revenues rose 12.5% year over year to $1.1 billion.
The benefits expense ratio deteriorated 270 bps year over year to 89%. HUM’s operating income of $1.14 billion tumbled 20.5% year over year. The Insurance segment recorded adjusted revenues of $28.4 billion in the second quarter, which grew 14.1% year over year. Total medical membership of the segment was 16.3 million as of Jun 30, 2024, which fell 4.8% year over year. The CenterWell unit’s revenues advanced 9.2% year over year to $4.9 billion.
Cigna reported second-quarter adjusted EPS of $6.72, which beat the Zacks Consensus Estimate by 4.7%. The bottom line improved 9.6% year over year. Adjusted revenues were $60.5 billion, which climbed 24.4% year over year. The top line outpaced the consensus mark by 3.4%. CI’s medical customer base was 19 million as of Jun 30, 2024, which slipped 2.4% year over year. Adjusted income from operations grew 5% year over year to $1.9 billion.
The Evernorth Health Services unit recorded adjusted revenues of $49.5 billion, which surged 30% year over year. Adjusted operating income on a pretax basis advanced 7% year over year to $1.62 billion. The Cigna Healthcare unit’s adjusted revenues were $13.1 billion, which grew 3% year over year. The unit’s pre-tax adjusted operating income advanced 3% year over year to $1.2 billion. MCR deteriorated 110 bps year over year to 82.3% at the second-quarter end.
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Encompass Health (EHC) Stock Down 6% Despite Q2 Earnings Beat
Encompass Health Corporation (EHC - Free Report) shares declined 5.6% since it reported second-quarter 2024 results on Aug 5. Despite robust patient volumes, strong discharges and impressive growth-related initiatives, investors might be concerned regarding elevated operating expenses, particularly in salaries and benefits, which are likely to have strained the company’s profitability.
EHC reported second-quarter adjusted earnings per share (EPS) of $1.11, which beat the Zacks Consensus Estimate by 9.9%. The bottom line advanced 16.8% year over year.
Net operating revenues of $1.3 billion improved 9.6% year over year. However, the top line missed the consensus mark by 0.3%.
Encompass Health Corporation Price, Consensus and EPS Surprise
Encompass Health Corporation price-consensus-eps-surprise-chart | Encompass Health Corporation Quote
Q2 Operations
EHC’s net patient revenue per discharge rose 2% year over year but fell short of our growth estimate of 2.3%. Total discharges grew 6.7% year over year to 60.83 million, higher than our growth estimate of 60.75 million.
Total operating expenses of $1.09 billion escalated 8.2% year over year due to elevated salaries and benefits and other operating expenses. The metric came lower than our estimate of $1.11 billion.
Net and comprehensive income climbed 25% year over year to $146.5 million in the second quarter.
Adjusted EBITDA of $271.8 million grew 8.9% year over year and surpassed our estimate of $263.1 million.
Encompass Health added 24 beds to its existing hospitals in the second quarter. It also inaugurated three de novo hospitals and one satellite hospital.
Financial Update (as of Jun 30, 2024)
Encompass Health exited the second quarter with cash and cash equivalents of $154.4 million, which more than doubled from the 2023-end level.
Total assets of $6.4 billion increased 4.7% from the figure at 2023-end.
Long-term debt, net of the current portion, amounted to $2.7 billion, which dipped marginally from the figure as of Dec 31, 2023. The current portion of long-term debt totaled $32.5 million.
Total shareholders’ equity of $2.5 billion advanced 10% from the 2023-end figure.
EHC generated $217.4 million of net cash from operations in the second quarter, which improved 5.2% from the prior-year comparable period. Adjusted free cash flow rose 14.7% year over year to $142.5 million.
Capital Deployment Update
Encompass Health recommenced share buybacks and bought back shares worth $16.8 million in the second quarter. The company had a leftover capacity of around $181 million under its buyback authorization as of Jun 30, 2024. Management approved an increase in common stock repurchase authorization to $500 million.
Management paid out a quarterly cash dividend of 15 cents per share.
2024 Outlook Updated
Net operating revenues are currently anticipated to be between $5.275 billion and $5.35 billion, up from the prior guidance of $5.25-$5.325 billion. The mid-point of the revised outlook indicates an improvement of 10.7% from the 2023 reported figure.
Adjusted EBITDA is anticipated to be in the range of $1.04-$1.075 billion, higher than the earlier view of $1.03-$1.065 billion. The mid-point of the updated guidance indicates 8.9% growth from the 2023 figure.
Adjusted EPS from continuing operations is expected to stay within $3.97-$4.22, up from the prior guided range of $3.86-$4.11. The mid-point of the revised outlook implies a 12.5% rise from the 2023 figure.
Adjusted free cash flow is estimated to lie between $495 million and $580 million, up from the earlier range of $475-$570 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 #3 (Hold). 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 second-quarter 2024 results so far, the bottom-line results of Acadia Healthcare Company, Inc. (ACHC - Free Report) , Humana Inc. (HUM - Free Report) and The Cigna Group (CI - Free Report) beat the respective Zacks Consensus Estimate.
Acadia Healthcare reported adjusted second-quarter earnings of 91 cents per share, which beat the Zacks Consensus Estimate by 3.4%. However, the bottom line dipped 1.1% year over year. Total revenues advanced 8.8% year over year to $796 million. The top line outpaced the consensus mark by 1.5%. Same-facility revenues of $776.1 million rose 8.3% year over year. The year-over-year improvement was driven by 5.6% growth in revenue per patient day and a 2.6% increase in patient days.
Admissions inched up 0.7% year over year. The average length of stay grew 1.8% year over year but missed our growth estimate of 2%. In the overall facility, patient days advanced 2.6% year over year while admissions inched up 1% year over year. Revenue per patient day improved 6.1% year over year. The average length of stay rose 1.6% year over year. Adjusted EBITDA climbed 7.6% year over year to $187.6 million. Adjusted EBITDA margin remained flat year over year at 29.5%.
Humana posted second-quarter adjusted EPS of $6.96, which surpassed the Zacks Consensus Estimate by 18.2%. However, the bottom line fell 22.1% year over year. Adjusted revenues improved 14.2% year over year to $29.4 billion. The top line beat the consensus mark by 2.6%. Humana’s total premiums of $28.1 billion advanced 10.4% year over year. Services revenues rose 12.5% year over year to $1.1 billion.
The benefits expense ratio deteriorated 270 bps year over year to 89%. HUM’s operating income of $1.14 billion tumbled 20.5% year over year. The Insurance segment recorded adjusted revenues of $28.4 billion in the second quarter, which grew 14.1% year over year. Total medical membership of the segment was 16.3 million as of Jun 30, 2024, which fell 4.8% year over year. The CenterWell unit’s revenues advanced 9.2% year over year to $4.9 billion.
Cigna reported second-quarter adjusted EPS of $6.72, which beat the Zacks Consensus Estimate by 4.7%. The bottom line improved 9.6% year over year. Adjusted revenues were $60.5 billion, which climbed 24.4% year over year. The top line outpaced the consensus mark by 3.4%. CI’s medical customer base was 19 million as of Jun 30, 2024, which slipped 2.4% year over year. Adjusted income from operations grew 5% year over year to $1.9 billion.
The Evernorth Health Services unit recorded adjusted revenues of $49.5 billion, which surged 30% year over year. Adjusted operating income on a pretax basis advanced 7% year over year to $1.62 billion. The Cigna Healthcare unit’s adjusted revenues were $13.1 billion, which grew 3% year over year. The unit’s pre-tax adjusted operating income advanced 3% year over year to $1.2 billion. MCR deteriorated 110 bps year over year to 82.3% at the second-quarter end.