Analysts: Encompass Health Signaling Hospice, Home Health Spin-Off

The recent appointments of a new C-suite executive team at Encompass Health’s (NYSE: EHC) hospice and home health business is a likely indicator that the company will spin off that segment into a separate company according to an analysis from the financial services company Jeffries.

Encompass announced last December that it was considering a strategic repositioning of its home health and hospice segment, potentially through a spin off, sale, merger, or other action. During the past two weeks, the company has named two key members of its executive team going forward. This includes Barbara Jacobsmeyer as CEO of the home health and hospice business, with Crissy B. Carlisle, currently the company’s chief investor relations officer, coming on as CFO. The previous CEO, April Anthony, stepped down June 18 in a planned departure.

“We view [Encompass Health’s] appointment of its current [investor relations] head as CFO of the home health business, following last week’s appointment of its former IRF president as CEO of the home health division, as a sign that the board will likely pursue a public spin-off of Encompass Home Health, with an announcement expected on the [second quarter 2021] earnings call,” Equity Analyst Brian Tanquilut and Equity Associate Jack Slevin of Jeffries said in a research note.

The professional backgrounds of Jacobsmeyer and Carlisle make them well-suited to lead a publicly-traded spin off, according to Jeffries. Both have strong roots in finance and working with investors.

Encompass brought Jacobsmeyer on board in 2007 as central region president. She has also served as CEO of the Rehabilitation Hospital of St. Louis and chief operating officer of Des Peres Hospital.

Carlisle joined Encompass in 2005 as director of Securities and Exchange Commission reporting and was quickly promoted to vice president of financial reporting. In 2015, she became the company’s chief investor relations officer. She previously worked as a director at FTI Consulting and as a manager in PricewaterhouseCoopers’ audit practice.

“The appointment of company insiders to C-suite positions in [Encompass Home Health and Hospice] suggests that the business is unlikely to be sold and that a public spin-off is the most likely outcome of the company’s strategic review of its home health segment,” according to Tanquilut and Slevin. “If [Encompass Home Health and Hospice] were to be sold, we believe the board wouldn’t have felt the need to install new leadership in the business prior to its sale.”

The Encompass hospice segment brought in $50.6 million in revenues during the first quarter of the year, up 5.4% from $48 million in Q1 2020. The company operates 82 hospice and 241 home health locations across 39 states in the United States and Puerto Rico.

Jeffries reduced its stock price target for Encompass to $93 from $100 in anticipation of the spin off. A price target designed to predict the fair value of a stock relative to his projected and historical earnings. Lowering the target indicates that the analysts expect the stock price to fall as a result of the spin off, even if the move could spur growth in the long term.

While selling the business would likely yield a faster return for the company and its investors, the potential spin-off would likely be a winning proposition in the years to come. The company continues to be aggressive on growth, including hospice acquisitions.

The company is seeking to boost admissions as the pandemic drives more care into the home and away from institutional settings. Both hospice and home health acquisitions remain on the company’s radar, CEO Mark Tarr indicated earlier this year in a talk at the Barclay’s Global Healthcare Conference.

The 2019 acquisition of privately owned Alacare Home Health & Hospice for $217.5 million made Encompass Health the 10th largest hospice provider in the United States. In April, the company acquired Frontier Home Health & Hospice, adding 11 hospice and nine home health locations across five states.

“This will be another active year for home health and hospice as well. This is a year where we would say that the reimbursement landscape has greater visibility in recent history,” Tarr said at Barclay’s. “We’ll continue to focus on capturing market share, both organically and through industry consolidation.”