Encompass Health Lifts 2026 Guidance as Adjusted EPS Rises 23.6%

Encompass Health (NYSE: EHC) raised its full-year 2026 guidance on October 28, 2026, after third-quarter adjusted earnings per share rose 23.6 percent to $1.52 and adjusted EBITDA grew 15.5 percent to $346.6 million.

Net operating revenue reached $1,609.5 million for the quarter ended September 30, 2026, up 8.9 percent from $1,477.5 million a year earlier. Income from continuing operations attributable to the company per diluted share climbed 21.8 percent to $1.51. Cash flows from operating activities rose 33.7 percent to $362.0 million, and adjusted free cash flow jumped 51.2 percent to $263.4 million. The numbers look strong; the cash conversion looks stronger.

Volume and pricing both contributed. Discharges increased 5.7 percent to 69,605, with same-store discharge growth of 3.0 percent. Net patient revenue per discharge rose 4.0 percent to $22,543 from $21,679.

"We are very pleased with our performance for the third quarter, with revenue increasing 8.9% and Adjusted EBITDA growing 15.5%," said Mark Tarr, President and Chief Executive Officer. "During the first nine months of 2026, we opened four hospitals totaling 189 beds and added 85 beds to existing hospitals, reflecting our commitment to meeting the growing demand for high-quality inpatient rehabilitation services."

Tarr added that the company's "value proposition and disciplined operating strategy continue to be validated," and said management remains "highly optimistic about the long-term prospects of our business." Optimism is easy to state; the guidance revision is what tests it.

What did the guidance change?

The Birmingham, Alabama-based operator of 179 rehabilitation hospitals in 39 states and Puerto Rico narrowed and lifted all three of its full-year targets:

• Net operating revenue: $6,450 million to $6,500 million, up from $6,410 million to $6,490 million
• Adjusted EBITDA: $1,395 million to $1,415 million, up from $1,365 million to $1,395 million
• Adjusted EPS from continuing operations: $6.23 to $6.37, up from $6.02 to $6.25

The company does not provide GAAP guidance for adjusted EBITDA or adjusted EPS, because it cannot reasonably predict items such as settlements, mark-to-market adjustments on stock appreciation rights, hedging gains or losses, and income tax adjustments. Two GAAP measures it can estimate for the Adjusted EBITDA reconciliation: interest expense and amortization of debt discounts and fees of roughly $130 million, and amortization of debt-related items of roughly $10 million.

Where did the cash go?

For the nine months ended September 30, 2026, net cash from operating activities totaled $957.7 million against $829.6 million in the prior-year period. Capital spending consumed $617.2 million, up from $507.1 million. Financing activity absorbed $333.1 million, driven by $203.7 million of share repurchases, $141.8 million of distributions to noncontrolling interests, $57.9 million of dividends, and $414.5 million of debt principal payments, partly offset by a $598.8 million bond issuance and $745.0 million drawn on the revolving credit facility against $800.0 million repaid.

Diluted weighted average shares fell to 99.7 million from 102.3 million, so buybacks contributed to the per-share arithmetic. Nine-month net income attributable to Encompass Health reached $498.3 million versus $420.1 million, though that figure includes a $17.5 million gain on the sale of a Gamma Knife business — a one-off the adjusted EPS bridge strips out, cutting nine-month adjusted EPS to $4.67 against reported $4.83.

Total assets grew to $7,566.5 million at September 30, 2026 from $7,089.7 million at December 31, 2025, while long-term debt rose to $2,551.3 million from $2,447.2 million. Accounts receivable climbed to $712.0 million from $619.2 million, a working-capital draw the cash flow statement absorbs but the balance sheet does not hide.

The company will hold its investor call at 10:00 a.m. Eastern Time on October 29, 2026, with supplemental information posted at investor.encompasshealth.com. The results remain unaudited and subject to the risk factors the company lists, from Medicare audit activity to Medicaid reimbursement changes.

Guidance rose, cash followed; the fourth quarter now has to confirm both.