Key Highlights

  • Adjusted EPS of USD 1.52 rose 23.6% from USD 1.23 and topped the USD 1.36 consensus estimate.
  • Revenue of USD 1.61 billion grew 8.9%, supported by discharges up 5.7% to 69,605 and pricing gains.
  • Adjusted EBITDA climbed 15.5% to USD 346.6 million, while adjusted free cash flow rose 51.2% to USD 263.4 million.
  • Updated 2026 guidance lifts the adjusted EPS range to USD 6.23 to USD 6.37 from USD 6.02 to USD 6.25.

Encompass Health Corporation (NYSE:EHC) reported third-quarter 2026 adjusted earnings per share of USD 1.52, up 23.6% from USD 1.23 and above a consensus estimate of USD 1.36. Income from continuing operations per diluted share was USD 1.51 on a GAAP basis, compared with USD 1.24 a year earlier. Net operating revenue of USD 1.609 billion grew 8.9% and was slightly above a consensus estimate of USD 1.60 billion.

Discharges rose 5.7% to 69,605, including same-store growth of 3.0%, and net patient revenue per discharge increased 4.0% to USD 22,543. President and CEO Mark Tarr cited revenue growth of 8.9% and adjusted EBITDA growth of 15.5% and said four hospitals totaling 189 beds opened in the first nine months, with another 85 beds added to existing hospitals.

Cash Flow, Capacity and Balance Sheet

Operating cash flow rose 33.7% to USD 362.0 million, and adjusted free cash flow reached USD 263.4 million against USD 174.2 million a year ago. Salaries and benefits grew 7.1% to USD 840.7 million, slower than revenue, while depreciation and amortization increased to USD 95.7 million from USD 82.4 million as new capacity came online. Net pre-opening and ramp-up costs were USD 4.9 million in the quarter.

The company opened a 50-bed hospital in Norristown, Pennsylvania, and added 31 beds to existing hospitals during the quarter. It issued an additional USD 100 million of 5.875% senior notes due 2034 in August. Net leverage stood at 1.8x, and the revolver carried USD 75.0 million of borrowings. The company repurchased 494,657 shares for USD 57.9 million in the quarter, bringing the year-to-date total to 1,906,499 shares for USD 203.7 million, and its repurchase authorization was increased to USD 1 billion.

Raised Guidance and Regulatory Items

Full-year 2026 guidance now calls for net operating revenue of USD 6.45 billion to USD 6.50 billion, up from USD 6.41 billion to USD 6.49 billion. Adjusted EBITDA is guided to USD 1.395 billion to USD 1.415 billion, and adjusted EPS to USD 6.23 to USD 6.37. Assumptions include fourth-quarter Medicare pricing up about 2.3%, managed care pricing up 3.5% to 4.0%, salaries and benefits per full-time equivalent up 3.5% to 4.0%, and a tax rate near 26%.

On the regulatory side, CMS announced that a review demonstration for Medicare fee-for-service claims would extend to all inpatient rehabilitation facilities in one administrative jurisdiction from January 1, 2027. That change brings 75 of the company's hospitals into the program, for a total of 108. The company also tracks a bundled payment model that covered about 2% of its discharges in 2025.

Watch List for the Coming Quarter

Four items frame the next report. Capacity comes first: the company plans 8 new hospitals with 389 beds in 2026 and 145 to 190 beds added to existing hospitals, with 514 to 564 total beds listed for 2027. Second is the January 1, 2027 expansion of claim review to 75 more hospitals. Third is cash use: adjusted free cash flow guidance of USD 770 million to USD 865 million against growth capital of USD 695 million to USD 755 million. Fourth is the fourth-quarter pricing assumptions, including Medicare near 2.3% and bad debt reserves of 2.0% to 2.5% of revenue.