5 Revealing Analyst Questions From Encompass Health's Q3 Earnings Call

Encompass Health’s third quarter saw revenue and non-GAAP profit meeting or modestly exceeding Wall Street expectations, yet the market responded negatively due to concerns over slowing same-store sales growth and volume headwinds. Management attributed the moderation in same-store discharge growth to tough prior-year comparisons, the timing of new capacity additions, and consolidation of two satellite locations. CEO Mark Tarr highlighted that “quarterly fluctuations in discharge volume growth and the composition of that growth between same and new store is a normal expectation of our business model.” Despite steady overall growth, the company’s explanation of volume softness did not fully allay investor concerns, as evidenced by the market’s reaction.

Is now the time to buy EHC? Find out in our full research report (it’s free for active Edge members).

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 Q3 Earnings Call

• Joanna Gajuk (Bank of America) asked how accelerated bed additions will impact volume growth and long-term discharge targets. CFO Douglas Coltharp emphasized that increased bed expansions validate the business model and are supported by steady occupancy gains.

• Pito Chickering (Deutsche Bank) inquired about capital expenditure needs to sustain growth and occupancy thresholds for triggering expansions. Coltharp explained that bed additions are targeted when sustained occupancy exceeds 80%, and the expansion process can be completed within 18 to 24 months.

• Ann Hynes (Mizuho Securities) questioned if there were any surprises in the quarter or Washington policy risks. Coltharp cited only minor timing-related surprises from provider tax payments, while CEO Mark Tarr stated there were no near-term regulatory concerns.

• Matthew Gillmor (KeyBanc) asked about changes in payer mix and potential headwinds or tailwinds for next year. Coltharp responded that payer growth was balanced and saw no major headwinds, with provider taxes as a possible wildcard.

• Benjamin Mayo (Leerink Partners) explored the impact of capacity timing and holiday calendars on discharge growth, as well as updates on regulatory programs. Coltharp noted quarter-to-quarter fluctuations are expected, but long-term discharge growth targets remain unchanged.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will closely monitor (1) the ramp-up and occupancy rates of newly opened hospitals and added beds, (2) continued progress in reducing premium labor costs and maintaining efficient staffing, and (3) regulatory and reimbursement developments that could affect net provider taxes or payer mix. The pace of same-store sales stabilization and the success of the Oracle ERP integration will also be important signposts for operational execution.

Encompass Health currently trades at $110, down from $125.71 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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