Encompass Health’s second quarter was marked by broad-based discharge growth and operational improvements, resulting in a positive market reaction. Management attributed the quarter’s performance to increased patient volumes across geographies and payer types, with complex neurological and stroke cases standing out as key drivers. CEO Mark Tarr specifically noted, “Our dedicated and highly competent clinical teams continue to deliver outstanding patient outcomes,” highlighting the company’s focus on treating patients with significant medical needs. Additionally, strategic bed expansions and new facility openings contributed to the company’s ability to meet rising demand.
Is now the time to buy EHC? Find out in our full research report (it’s free).
Encompass Health (EHC) Q2 CY2025 Highlights:
- Revenue: $1.46 billion vs analyst estimates of $1.43 billion (12% year-on-year growth, 2.2% beat)
- Adjusted EPS: $1.40 vs analyst estimates of $1.21 (15.8% beat)
- Adjusted EBITDA: $318.6 million vs analyst estimates of $294.5 million (21.9% margin, 8.2% beat)
- The company slightly lifted its revenue guidance for the full year to $5.93 billion at the midpoint from $5.89 billion
- Management raised its full-year Adjusted EPS guidance to $5.23 at the midpoint, a 5.1% increase
- EBITDA guidance for the full year is $1.24 billion at the midpoint, above analyst estimates of $1.21 billion
- Operating Margin: 18%, up from 16.4% in the same quarter last year
- Same-Store Sales rose 4.7% year on year, in line with the same quarter last year
- Market Capitalization: $11.95 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Encompass Health’s Q2 Earnings Call
- Andrew Mok (Barclays) asked about mature occupancy rates in single-bed facilities. CFO Douglas Coltharp explained occupancy stabilizes above 80% before considering expansions and noted that capacity can reach mid- to high-90s in all-private rooms.
- Matthew Gillmor (KeyBanc) inquired how quality results are shared with stakeholders. CEO Mark Tarr explained that metrics like discharge community rates and Net Promoter Scores are shared with joint venture partners and referral sources, emphasizing strong performance on these quality indicators.
- Philip Chickering (Deutsche Bank) questioned the bridge between first- and second-half EBITDA guidance, focusing on start-up costs and employee metrics. Coltharp detailed that most preopening costs will be incurred in the second half, and employee per occupied bed is expected to rise slightly due to new capacity.
- Whit Mayo (Leerink Partners) asked about hiring in the physiatrist market. COO Patrick Tuer said supply has stabilized, with recruitment supported by university partnerships and internal medicine conversions, ensuring all current needs are met.
- Ann Hynes (Mizuho Securities) queried about the use of artificial intelligence in documentation and coding. Coltharp shared that AI is being used to reduce administrative burden and improve documentation accuracy, including streamlining patient evaluations for nurse liaisons.
Catalysts in Upcoming Quarters
In the upcoming quarters, the StockStory team will monitor (1) the pace and impact of new hospital openings and bed expansions, (2) sustained discharge growth across high-acuity specialties like neurology and stroke, and (3) further improvements in labor retention and efficiency. Additionally, we will track regulatory developments affecting reimbursement rates and quality metrics, as well as shifts in payer mix, particularly the expansion of managed care and VA contracts.
Encompass Health currently trades at $118.63, up from $109.21 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).
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