Encompass Health Lifts 2026 Outlook As Third-Quarter Free Cash Flow Rises 51.2%
The rehab hospital operator raised its revenue, adjusted EBITDA and adjusted earnings targets after revenue grew 8.9%.
Encompass Health, the largest owner and operator of inpatient rehabilitation hospitals in the United States, raised all three of its 2026 financial targets on Wednesday after third-quarter revenue grew 8.9% to $1,609.5 million. Adjusted free cash flow rose 51.2% to $263.4 million, the company said in an 8-K filing.
Profit and cash outrun revenue
Adjusted earnings were $1.52 per share against $1.23 a year earlier. Adjusted EBITDA, the company's preferred profit measure before interest, taxes and depreciation, rose 15.5% to $346.6 million from $300.1 million.
Operating cash flow climbed 33.7% to $362.0 million. Discharges, the count of patients leaving its hospitals after treatment, grew 5.7% to 69,605, with same-store growth of 3.0%. Net patient revenue per discharge rose 4.0% to $22,543.
CEO Mark Tarr said the company is "very pleased" with the quarter. In the first nine months of 2026, it opened four hospitals totaling 189 beds and added 85 beds to existing hospitals.
The new full-year ranges
The company now expects 2026 net operating revenue of $6,450 million to $6,500 million, up from $6,410 million to $6,490 million. Adjusted EBITDA guidance moved to $1,395 million to $1,415 million from $1,365 million to $1,395 million.
Adjusted earnings guidance rose to $6.23 to $6.37 per share, from $6.02 to $6.25. The outlook assumes eight new hospitals with 389 beds this year.
Bad debt and the buyback
Revenue reserves for bad debt rose to 2.7% of revenue from 1.9% a year earlier. A slide attributes the increase primarily to a billing and collecting disruption following a system conversion in the second quarter of 2026. For the fourth quarter, the company assumes reserves of 2.0% to 2.5% of revenue.
The board raised the share repurchase authorization to $1 billion in July, and about $955 million remained at the end of September. The company bought back 494,657 shares for $57.9 million in the third quarter.
Encompass Health runs inpatient rehabilitation hospitals for patients recovering from major injuries or illnesses. Management is scheduled to hold its earnings call at 10:00 a.m. Eastern on Thursday.
Encompass Health ended September with net leverage of 1.8 times adjusted EBITDA, according to its earnings slides.
