Encompass Health raises 2026 forecast as Q3 profit tops estimates

Encompass Health Corporation (EHC) said on Oct. 28 that adjusted earnings per share for the third quarter of 2026 were $1.52, topping the $1.37 consensus estimate compiled by Finnhub. Revenue was $1.61 billion, in line with the $1.62 billion consensus estimate compiled by Finnhub.

The company also raised its full-year 2026 guidance. The results cover the three months ended Sept. 30, 2026. Revenue rose 8.9% from a year earlier, and adjusted EBITDA grew 15.5%.

The company is the largest owner and operator of inpatient rehabilitation hospitals in the United States, with 179 hospitals in 39 states and Puerto Rico, according to its release.

Here's how the company did:

• Adjusted EPS: $1.52 vs. $1.23 a year earlier, $1.37 expected, according to Finnhub
• Diluted EPS from continuing operations: $1.51 vs. $1.24 a year earlier
• Revenue: $1,609.5 million vs. $1,477.5 million a year earlier, $1.62 billion expected, according to Finnhub
• Adjusted EBITDA: $346.6 million vs. $300.1 million a year earlier
• Adjusted free cash flow: $263.4 million vs. $174.2 million a year earlier

President and Chief Executive Officer Mark Tarr said the company was “very pleased with our performance for the third quarter.” He added: “Our value proposition and disciplined operating strategy continue to be validated, and we remain highly optimistic about the long-term prospects of our business.”

2026 guidance

The company now expects net operating revenue of $6,450 million to $6,500 million, up from the $6,410 million to $6,490 million range it gave on Aug. 5.

Adjusted EBITDA is now expected at $1,395 million to $1,415 million, from $1,365 million to $1,395 million. Adjusted EPS from continuing operations is now expected at $6.23 to $6.37, from $6.02 to $6.25.

The company expects a tax rate of about 26% and a diluted share count of about 100 million shares. It expects to open eight new hospitals with a total of 389 beds in 2026.

Operations and costs

Inpatient revenue was $1,569.1 million, up from $1,427.3 million a year earlier. Discharges rose 5.7% to 69,605, and same-store discharge growth was 3.0%.

Net patient revenue per discharge was $22,543, up 4.0% from $21,679. Through the first nine months, the company opened four hospitals totaling 189 beds and added 85 beds to existing hospitals.

Bad debt reserves rose to 2.7% of revenue from 1.9% a year earlier. The company attributed the increase to a billing and collecting disruption that followed a system conversion in the second quarter of 2026, according to its supplemental slides. Medicaid supplemental payments fell $10.0 million.

The company sold its 50% stake in Gamma Knife Center at Barnes-Jewish Hospital, LLC for $17.9 million and recorded a $17.5 million pre-tax gain over the nine months. The gain is excluded from adjusted EPS.

North Carolina’s repeal of certificate of need requirements led the company to accelerate amortization of a CON asset, adding about $2.9 million to depreciation and amortization in the third quarter. The company excluded that impact from adjusted EBITDA and adjusted EPS.

Cash and capital returns

The board increased the common stock repurchase authorization to $1 billion on July 23, 2026. About $955 million remained under it as of Sept. 30.

In the third quarter the company repurchased 494,657 shares for $57.9 million. Year to date it has repurchased 1,906,499 shares for $203.7 million.

The company declared a 21-cent quarterly dividend in July, payable in October, up from the 19 cents paid in July. In August it issued an additional $100 million of 5.875% senior notes due 2034. Net leverage was 1.8 times at Sept. 30.