Encompass Health’s fourth quarter was marked by strong operational execution, with management attributing the positive results to disciplined labor cost management and continued growth in patient discharges. CEO Mark Tarr highlighted that premium labor spend declined by over $21 million year over year despite significant capacity additions and an increase in patients treated. The company also noted that patient outcome and quality metrics outperformed industry averages, supported by investments in both new hospitals and expanded bed capacity. Management credited these operational efficiencies and quality improvements as key drivers of the quarter’s performance.
Is now the time to buy EHC? Find out in our full research report (it’s free for active Edge members).
Encompass Health (EHC) Q4 CY2025 Highlights:
- Revenue: $1.54 billion vs analyst estimates of $1.54 billion (9.9% year-on-year growth, in line)
- Adjusted EPS: $1.46 vs analyst estimates of $1.30 (12.1% beat)
- Adjusted EBITDA: $335.6 million vs analyst estimates of $313.7 million (21.7% margin, 7% beat)
- Adjusted EPS guidance for the upcoming financial year 2026 is $5.96 at the midpoint, beating analyst estimates by 2.9%
- EBITDA guidance for the upcoming financial year 2026 is $1.36 billion at the midpoint, in line with analyst expectations
- Operating Margin: 18.4%, up from 17% in the same quarter last year
- Same-Store Sales rose 3.2% year on year (5.8% in the same quarter last year)
- Market Capitalization: $11.41 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 Q4 Earnings Call
- Matthew Gillmor (KeyBanc): asked about the impact of new hospital ramp-ups and challenging volume comparisons. CFO Douglas Coltharp explained that volume growth was affected by tough prior-year comparisons and de novo hospital openings later in the year, with some closures creating temporary headwinds.
- Andrew Mok (Barclays): questioned drivers behind improved labor costs amid moderating volumes. CEO Mark Tarr and Chief Operating Officer Patrick Tuer attributed it to softening labor markets, improved recruitment, and reduced contract labor, emphasizing operational discipline.
- Pito Chickering (Deutsche Bank): asked about affirmation rates and the appeals process under RCD. Coltharp described ongoing appeals, high reversal rates, and anticipated improvement in affirmation rates as the process matures.
- Joanna Gajuk (Bank of America): inquired about the financial impact of the TEAM payment model on margins and net revenue per discharge. Coltharp and Tuer noted no material impact expected, with margin and revenue per discharge largely in line with company averages.
- Jared Haase (William Blair): probed for details on the partnership with Palantir and its measurable benefits. Coltharp highlighted expected gains in claims management efficiency and new projects targeting clinical staffing and market analysis.
Catalysts in Upcoming Quarters
In coming quarters, the StockStory team will be monitoring (1) execution of the small-format hospital strategy and the pace of capacity additions, (2) the company’s ability to manage regulatory transitions, especially with the TEAM model and RCD expansion, and (3) the effectiveness of operational improvements in labor management and technology adoption. Shifts in payer mix and volume growth by diagnosis category will also be important to track.
Encompass Health currently trades at $113.43, up from $99.56 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).
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