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Here's Why You Should Add Chemed (CHE) to Your Portfolio

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Chemed Corporation (CHE - Free Report) has been gaining investor’s confidence on the back of consistent performance and positive results. The stock has rallied 34.2% over the last year, ahead of the S&P 500’s 14.4% gain and the industry’s 0.9% rise.

This leading manufacturer of products and services primarily for the companion animal veterinary has a market cap of $3.05 billion. The company’s five-year historical growth rate is also favorable at 9% as compared with 2.8% of the S&P 500 market.

With solid prospects, this Zacks Rank #2 (Buy) stock is an attractive pick for investors at the moment.

The company’s estimate revision trend for the current year has also been positive. In the past 60 days, one estimate moved north, with no movement in the opposite direction. The magnitude of estimate revision for earnings per share increased around 3.3% to $8.20 over the same time frame.

Also per the Zacks Style Score system, Chemed sports a Growth Score of A, which suggests the company’s strong growth prospects.

Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.

In this regard, Chemed has a favorable Net Margin (Net Income/ Sales) of 4.2%, better than the industry’s 3.3%. The sales to assets ratio of 1.84 supports the company as a solid growth stock in comparison to the industry’s 1.07. Moreover, the Debt to Capital ratio of 20.2% is attractively placed in comparison with the industry’s 44.6%.

Let’s find out whether the recent positive trend is a sustainable one.

Chemed’s second-quarter 2017 performance was quite promising with the bottom line significantly improving on a year-over-year basis. The stellar performance was driven by the company’s increase in the average net Medicare reimbursement rate and average daily census.

Continuing with the momentum, the raised outlook for both Roto-Rooter segment and earnings per share is indicative of the company’s anticipated improved operating results in the upcoming quarters. This, in turn, boosts investors’ optimism on the stock.In fact, the raised view was backed by the Chemed’s expectation of significant gains from its Roto-Rooter business.

Within Chemed’s VITAS business, management noted that the recent admission trends have been positive and is expected to continue in the coming quarters. During second-quarter 2017, VITAS performed well, financially and operationally, thereby surpassing the company’s estimates.

Additionally, the company’s strong cash balance enables it to carry out share repurchase programs, providing solid returns to investors.

However, headwinds like reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandate pose challenges for Chemed.  Also, a tweaked guidance for Medicare Cap billing limitations is a matter of concern.

Other Key Picks

Other top-ranked medical stocks are Edwards Lifesciences Corporation (EW - Free Report) , IDEXX Laboratories, Inc (IDXX - Free Report) and Amedisys, Inc (AMED - Free Report) . Edwards Lifesciences sports a Zacks Rank #1, while IDEXX and Amedisys carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 19.5% over the last six months.

IDEXX has a long-term expected earnings growth rate of 19.8%. The stock has gained around 3.7% over the last six months.

Amedisys has a long-term expected earnings growth rate of 18.2%. The stock has gained 3.5% over the last six months.

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