Encompass Sets Stage for Home Health, Hospice Separation While Mulling Segment’s Future

Encompass Health (NYSE: EHC) may be inching closer to spinning off its home health and hospice segment. Encompass announced last December that it was mulling a strategic repositioning of its home health and hospice business. The company has not yet announced a final decision but has indicated that preparations have begun for a possible separation transaction. 

Last month, the company tapped 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. These appointments led some industry observers to conclude that a spin off would be coming.

“Based on the analysis to date, the company’s Board of Directors believes a full or partial separation of the home health and hospice business will enhance the long-term success and value of the business,” Encompass indicated in its second quarter earnings release. “The company is pursuing a separation transaction by either public or private means.”

The financial services company Jeffries reduced its stock price target for Encompass to $93 from $100 in anticipation of the repositioning. A “price target” is 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 a potential spin off, even if the move could spur growth in the long term.

Encompass operates 82 hospice and 241 home health locations across 39 states and Puerto Rico. The 2019 acquisition of privately owned Alacare Home Health & Hospice for $217.5 million made Encompass Health the 10th largest hospice provider in the nation. In April, the company acquired Frontier Home Health & Hospice, adding 11 hospice and nine home health locations across five states.

While considering this repositioning, Encompass never backed off from growing its hospice segment despite COVID-19 headwinds. The company is considering further hospice transactions and plans to pick up more home health M&A activity as the fallout of the patient-driven groupings model (PDGM) subsides. PDGM, a new payment model for home health that launched in Jan. 2020, had investors cautious last year as they gauged potential disruption in that sector.

Regarding a potential separation, Encompass has prepared audited carved-out financial statements for its home health and hospice business as well as a draft registration statement for the U.S. Securities and Exchange Commission and other regulatory filings.

“Many of the key preparatory actions for a separation have been completed,” the company indicated. “While no assurance can be provided, the company expects to announce a transaction in the second half of 2021.”