Encompass Health Shares Down 8% Despite Q3 Earnings & Revenue Beat

Shares of Encompass Health Corporation EHC have fallen 8.3% since it reported third-quarter 2025 results on Oct. 29. The quarterly results were affected by rising operating expense levels due to increased salaries, benefits and other operating costs. However, the negatives were offset by strong net patient revenue per discharge and capacity expansion measures, with 39 beds added to existing hospitals and three de novo hospitals opened. A hiked 2025 EPS view may have also favored investors’ sentiment surrounding the stock.

Encompass Health reported third-quarter 2025 adjusted earnings per share (EPS) of $1.23, which surpassed the Zacks Consensus Estimate by 3.4%. The bottom line advanced 19.4% year over year.

Net operating revenues rose 9.4% year over year to $1.5 billion. The top line beat the consensus mark by 0.1%.

Encompass Health Corporation Price, Consensus and EPS Surprise

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

EHC’s Q3 Operations

EHC’s net patient revenue per discharge grew 3.3% year over year to $21.7 billion, which surpassed our growth estimate of 2.7%. Total discharges were 65,839, which improved 5% year over year. The metric missed the consensus mark of 66,576 and our estimate of 66,429.

Total operating expenses of $1.2 billion increased 8.1% year over year due to higher salaries and benefits, and other operating expenses. The metric came lower than our estimate by 0.5%.

Net income advanced 18.7% year over year to $174.6 million in the third quarter.

Adjusted EBITDA of $300.1 million improved 11.4% year over year, which topped our estimate of $288.4 million.

Encompass Health added 39 beds to its existing hospitals in the quarter under review and inaugurated three de novo hospitals.

Financial Update (As of Sept. 30, 2025)

Encompass Health exited the third quarter with cash and cash equivalents of $48.7 million, which decreased from the figure of $85.4 million at 2024-end.

Total assets of $6.9 billion were up 5.1% from the 2024-end level.

Long-term debt, net of the current portion, amounted to $2.4 billion, up 1.5% from the figure as of Dec. 31, 2024. The current portion of long-term debt totaled $39 million.

Total shareholders’ equity of $3.1 billion advanced 12.1% from the 2024-end figure.

EHC generated $270.8 million of net cash from operations in the third quarter, which climbed 1.1% year over year. Adjusted free cash of $174.2 million declined 8.2% year over year.

Capital Deployment Update

Encompass Health bought back shares worth $24.9 million in the quarter under review. As of Sept. 30, 2025, the company had a leftover capacity of around $408 million under its buyback authorization.

Management paid out a quarterly cash dividend of 19 cents per share.

EHC Raises 2025 Outlook

Net operating revenues for 2025 are currently forecasted to be between $5.905 billion and $5.955 billion, higher than the earlier view of $5.88 billion and $5.98 billion. The midpoint of the revised guidance implies a 10.4% rise from the 2024 figure.

Adjusted EBITDA for 2025 is now estimated to be between $1.235 billion and $1.255 billion, up from the prior guidance of $1.22-$1.25 billion. The midpoint of the updated guidance indicates 12.8% growth from the 2024 figure.

For 2025, adjusted EPS from continuing operations is now expected to be between $5.22 and $5.37, higher than the prior view of $5.12-$5.34. The midpoint of the revised outlook suggests 19.5% growth from the 2024 figure.

Adjusted free cash flow is presently forecasted within the range of $730-$810 million, up from the earlier guidance of $705-$795 million. Maintenance capex continues to be expected in the range of $215-$225 million.

The company reiterated its aim to open seven de novo hospitals, adding 340 beds, and a 50-bed satellite hospital. In 2025, it also expects to add 127 beds to existing hospitals.

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 expects a CAGR of 6-8% in discharges in the same time frame.

EHC’s Zacks Rank & Key Picks

EHC currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Medical space are Exact Sciences Corporation EXAS, Universal Health Services, Inc. UHS and Veracyte, Inc. VCYT, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Exact Sciences’ current-year earnings of 43 cents per share has witnessed three upward revisions in the past 30 days against no movement in the opposite direction. Exact Sciences beat earnings estimates in each of the trailing four quarters, with the average surprise being 352.3%. The consensus estimate for current-year revenues is pegged at $3.2 billion, suggesting 17.1% year-over-year growth.

The Zacks Consensus Estimate for Universal Health’s current-year earnings of $21.49 per share has witnessed five upward revisions in the past 30 days against no movement in the opposite direction. Universal Health beat earnings estimates in each of the trailing four quarters, with the average surprise being 15.2%. The consensus estimate for current-year revenues is pegged at $17.4 billion, suggesting 9.7% year-over-year growth.

The Zacks Consensus Estimate for Veracyte’s current-year earnings of $1.42 per share has witnessed one upward revision in the past 60 days against no movement in the opposite direction. Veracyte beat earnings estimates in each of the trailing four quarters, with an average surprise being 45.1%. The consensus estimate for current-year revenues is pegged at $508.3 million, suggesting 14% year-over-year growth.

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This article originally published on Zacks Investment Research (zacks.com).

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