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Chemed's (CHE) Shares Up on Q3 Earnings and Revenue Beat
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Chemed Corporation (CHE - Free Report) reported third-quarter earnings on Oct 29. The quarterly results have impressed investors, as the stock moved up 1.7% to close at $481.46 on Nov 2.
Chemed reported third-quarter 2020 adjusted earnings per share (EPS) of $4.86, up 40.5% year over year. The figure beat the Zacks Consensus Estimate by 21.8%.
The company’s GAAP EPS was $4.14, up 16.3% year over year.
Revenues in Detail
Revenues in the reported quarter improved 9.9% year over year to $528.3 million. The metric surpassed the Zacks Consensus Estimate by 2.2%.
Segmental Details
Chemed operates through two wholly-owned subsidiaries, VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).
In the third quarter, net revenues at VITAS totaled $337.1 million, up 4.8% year over year. The upside was driven by 5.7% increase in geographically-weighted average Medicare reimbursement rate (considering the suspension of sequestration on May 1, 2020) and acuity mix shift that reduced the blended average Medicare rate by approximately 242 basis points (bps). Additionally, a reduction in Medicare Cap liability boosted revenue growth by 162 bps. Further, combination of Medicaid net room and board pass-through and other contra revenue activity drove up the revenue growth by 9 bps in the quarter. However, the days-of-care declined 0.2% in the reported quarter.
Chemed Corporation Price, Consensus and EPS Surprise
Roto-Rooter reported sales of $191.2 million in the third quarter, up 20.4% year over year. On a unit-for-unit basis, excluding the Oakland and HSW acquisitions completed in July and September 2019, the segment registered revenues of $173 million in the third quarter (a year-over-year increase of 11.4%).
Per the company, total commercial revenues (excluding acquisitions) declined 11.6% on 13% fall in drain cleaning revenues, 11.2% fall in commercial plumbing and excavation revenues, and 1.6% fall in commercial water restoration revenue.
Total residential revenues (excluding acquisitions) registered growth of 24.6% on 22% rise in residential drain cleaning revenues, a 31.2% improvement in plumbing and excavation as well as 16.1% increase in residential water restoration.
Margin in Detail
Gross profit rose 24% year over year to $189.1 million in the third quarter of 2020. Gross margin expanded 407 bps year over year to 35.8% despite a 3.4% rise in cost of products and services.
Adjusted operating profit increased 33.3% from the year-ago period to $100.7 million. Adjusted operating margin expanded 334 bps to 19.1% despite a 14.9% rise in adjusted operating expenses.
Operational Update
Chemed exited the third quarter of 2020 with cash and cash equivalents of $112.8 million compared with $20.4 million at the end of the second quarter. There was no long-term debt at the end of third-quarter 2020, similarly like at the end of the second quarter.
In the third quarter, Chemed’s management repurchased stocks for $25 million. As of Sep 30, 2020, there was approximately $207 million of share repurchase remaining under the existing plan.
Cumulative net cash provided by operating activities at the end of the third quarter was $402.4 million compared with $237.6 million in the year-ago quarter.
Guidance
In 2020, revenue growth for VITAS (prior to Medicare Cap) is estimated to be in the range of 4%, down from the previously provided range of 5-7%. Average daily census in 2020 is estimated to be 1.3%, down from the previous band of 2-4%.
Roto-Rooter revenue growth in 2020 is expected in the range of 12.5-13%, up from the earlier projection of a growth of 9-10%.
Full-year adjusted EPS is estimated in the range of $18-$18.15, significantly up from the earlier projection of $16.20-$16.40. The Zacks Consensus Estimate for the full year adjusted EPS is currently pegged at $16.37.
Our Take
Chemed ended the third quarter of 2020 on a solid note with better-than-expected earnings and revenues. The company witnessed solid revenue growth across both key subsidiaries, which is impressive given the challenging business environment. Expansion of both margins buoy optimism on the stock. An upbeat projection for full year adjusted EPS and Roto-Rooter segment’s revenue growth looks encouraging.
However, a lower revenue growth projection for the VITAS segment is deterring. Reimbursement hampering top-line growth, business seasonality and a tough competitive landscape are other concerns.
Zacks Rank & Key Picks
Chemed currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .
West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher, a Zacks Rank #1 company, reported third-quarter 2020 adjusted EPS of $5.63. The figure beat the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.
Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.
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Chemed's (CHE) Shares Up on Q3 Earnings and Revenue Beat
Chemed Corporation (CHE - Free Report) reported third-quarter earnings on Oct 29. The quarterly results have impressed investors, as the stock moved up 1.7% to close at $481.46 on Nov 2.
Chemed reported third-quarter 2020 adjusted earnings per share (EPS) of $4.86, up 40.5% year over year. The figure beat the Zacks Consensus Estimate by 21.8%.
The company’s GAAP EPS was $4.14, up 16.3% year over year.
Revenues in Detail
Revenues in the reported quarter improved 9.9% year over year to $528.3 million. The metric surpassed the Zacks Consensus Estimate by 2.2%.
Segmental Details
Chemed operates through two wholly-owned subsidiaries, VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).
In the third quarter, net revenues at VITAS totaled $337.1 million, up 4.8% year over year. The upside was driven by 5.7% increase in geographically-weighted average Medicare reimbursement rate (considering the suspension of sequestration on May 1, 2020) and acuity mix shift that reduced the blended average Medicare rate by approximately 242 basis points (bps). Additionally, a reduction in Medicare Cap liability boosted revenue growth by 162 bps. Further, combination of Medicaid net room and board pass-through and other contra revenue activity drove up the revenue growth by 9 bps in the quarter. However, the days-of-care declined 0.2% in the reported quarter.
Chemed Corporation Price, Consensus and EPS Surprise
Chemed Corporation price-consensus-eps-surprise-chart | Chemed Corporation Quote
Roto-Rooter reported sales of $191.2 million in the third quarter, up 20.4% year over year. On a unit-for-unit basis, excluding the Oakland and HSW acquisitions completed in July and September 2019, the segment registered revenues of $173 million in the third quarter (a year-over-year increase of 11.4%).
Per the company, total commercial revenues (excluding acquisitions) declined 11.6% on 13% fall in drain cleaning revenues, 11.2% fall in commercial plumbing and excavation revenues, and 1.6% fall in commercial water restoration revenue.
Total residential revenues (excluding acquisitions) registered growth of 24.6% on 22% rise in residential drain cleaning revenues, a 31.2% improvement in plumbing and excavation as well as 16.1% increase in residential water restoration.
Margin in Detail
Gross profit rose 24% year over year to $189.1 million in the third quarter of 2020. Gross margin expanded 407 bps year over year to 35.8% despite a 3.4% rise in cost of products and services.
Adjusted operating profit increased 33.3% from the year-ago period to $100.7 million. Adjusted operating margin expanded 334 bps to 19.1% despite a 14.9% rise in adjusted operating expenses.
Operational Update
Chemed exited the third quarter of 2020 with cash and cash equivalents of $112.8 million compared with $20.4 million at the end of the second quarter. There was no long-term debt at the end of third-quarter 2020, similarly like at the end of the second quarter.
In the third quarter, Chemed’s management repurchased stocks for $25 million. As of Sep 30, 2020, there was approximately $207 million of share repurchase remaining under the existing plan.
Cumulative net cash provided by operating activities at the end of the third quarter was $402.4 million compared with $237.6 million in the year-ago quarter.
Guidance
In 2020, revenue growth for VITAS (prior to Medicare Cap) is estimated to be in the range of 4%, down from the previously provided range of 5-7%. Average daily census in 2020 is estimated to be 1.3%, down from the previous band of 2-4%.
Roto-Rooter revenue growth in 2020 is expected in the range of 12.5-13%, up from the earlier projection of a growth of 9-10%.
Full-year adjusted EPS is estimated in the range of $18-$18.15, significantly up from the earlier projection of $16.20-$16.40. The Zacks Consensus Estimate for the full year adjusted EPS is currently pegged at $16.37.
Our Take
Chemed ended the third quarter of 2020 on a solid note with better-than-expected earnings and revenues. The company witnessed solid revenue growth across both key subsidiaries, which is impressive given the challenging business environment. Expansion of both margins buoy optimism on the stock. An upbeat projection for full year adjusted EPS and Roto-Rooter segment’s revenue growth looks encouraging.
However, a lower revenue growth projection for the VITAS segment is deterring. Reimbursement hampering top-line growth, business seasonality and a tough competitive landscape are other concerns.
Zacks Rank & Key Picks
Chemed currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .
West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher, a Zacks Rank #1 company, reported third-quarter 2020 adjusted EPS of $5.63. The figure beat the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.
Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.
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Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
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