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Here's Why You Should Hold on to Chemed (CHE) Stock For Now
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Chemed Corporation (CHE - Free Report) has been gaining from strength in the Roto-Rooter segment. Robust demand for plumbing, drain cleaning, and excavation and water restoration services buoys optimism. A good solvency position also bodes well. However, tough competition and a decline in VITAS revenues raise apprehensions.
Over the past year, this Zacks Rank #3 (Hold) stock has gained 11.7% against a 41.9% decline of the industry. The S&P 500 rose 11.3% in the same time frame.
The renowned hospice care provider has a market capitalization of $7.25 billion. Chemed’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 6.6%.
Over the past five years, Chemed’s earnings grew 24.5%, way ahead of the industry’s 12.7% growth and the S&P 500’s 2.8% rise. The company projects 8.3% growth for the next five years.
Let’s delve deeper.
Factors at Play
Roto-Rooter Continues to Expand: Roto-Rooter is currently the nation’s leading provider of plumbing, drain cleaning services and water restoration, providing services to over 90% of the U.S. population. We are upbeat about the segment’s last-reported (fourth-quarter 2021) revenues, which rose 11.8% year over year. Total branch commercial revenues improved 14.8%, whereas total Roto-Rooter branch residential revenues registered growth of 11.2% on a year-over-year basis, respectively. For 2022, the company anticipates Roto-Rooter's revenue growth in the range of 8.0-9.5%.
Image Source: Zacks Investment Research
VITAS Prospects Bright: Chemed has been registering strong performance by the VITAS business as well over the past few quarters. Despite declining during the fourth quarter, the segment’s revenues were somewhat offset by a geographically weighted average Medicare reimbursement rate increase of nearly 1.1%. The VITAS arm continued to manage effectively in the face of a difficult environment induced by the COVID-19 pandemic. The company’s latest admission data suggest that senior housing is in the process of stabilization and recovery. The company’s 2022 outlook anticipates acceleration in senior housing admissions during the second half of 2022.
Strong Solvency: Chemed exited 2021 with cash and cash equivalents of $32.9 million, marking a significant decline from $162.7 million at the end of 2020. Meanwhile, long-term debt at 2021-end was $185 million, much higher than the current cash and cash equivalents level. However, while exiting the fourth quarter, the company did not report any short-term payable debt in its balance sheet, implying that the solvency level of Chemed is pretty promising.
Downsides
Pandemic Causes Revenue Erosion: Per data released by the National Investment Center for Seniors Housing & Care, the pandemic continues to impact senior housing occupancy. This reduced occupancy in senior housing led to a corresponding reduction in VITAS’ nursing home admissions. This is evident from the fact that nursing home patients accounted for 15.6% of VITAS’ fourth-quarter patient census compared to 18.2% of the total census just before the pandemic. During the fourth quarter, the pandemic-led disruptions to senior housing occupancy and the hospice referrals disrupted revenue growth.
Dependence on Government Mandates: Over 95% of VITAS’ revenues consist of payments from the Medicare and Medicaid programs. The segment’s levels of revenues and profitability are subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates, or changes in methods of payment by the Medicare and Medicaid programs.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning, and plumbing repair businesses is highly competitive. In most markets, competition is fragmented, with local and regional firms providing much of the competition. Meanwhile, the VITAS arm competes with a large number of organizations on the basis of its ability to deliver quality, responsive services.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Chemed’s 2023 earnings has moved 2.3% north to $21.31.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $2.18 billion, suggesting a 2.1% increase from the 2021 reported number.
Key Picks
Some better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.
AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 23.8% versus the 62% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
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Here's Why You Should Hold on to Chemed (CHE) Stock For Now
Chemed Corporation (CHE - Free Report) has been gaining from strength in the Roto-Rooter segment. Robust demand for plumbing, drain cleaning, and excavation and water restoration services buoys optimism. A good solvency position also bodes well. However, tough competition and a decline in VITAS revenues raise apprehensions.
Over the past year, this Zacks Rank #3 (Hold) stock has gained 11.7% against a 41.9% decline of the industry. The S&P 500 rose 11.3% in the same time frame.
The renowned hospice care provider has a market capitalization of $7.25 billion. Chemed’s earnings surpassed estimates in the trailing four quarters, delivering a surprise of 6.6%.
Over the past five years, Chemed’s earnings grew 24.5%, way ahead of the industry’s 12.7% growth and the S&P 500’s 2.8% rise. The company projects 8.3% growth for the next five years.
Let’s delve deeper.
Factors at Play
Roto-Rooter Continues to Expand: Roto-Rooter is currently the nation’s leading provider of plumbing, drain cleaning services and water restoration, providing services to over 90% of the U.S. population. We are upbeat about the segment’s last-reported (fourth-quarter 2021) revenues, which rose 11.8% year over year. Total branch commercial revenues improved 14.8%, whereas total Roto-Rooter branch residential revenues registered growth of 11.2% on a year-over-year basis, respectively. For 2022, the company anticipates Roto-Rooter's revenue growth in the range of 8.0-9.5%.
Image Source: Zacks Investment Research
VITAS Prospects Bright: Chemed has been registering strong performance by the VITAS business as well over the past few quarters. Despite declining during the fourth quarter, the segment’s revenues were somewhat offset by a geographically weighted average Medicare reimbursement rate increase of nearly 1.1%. The VITAS arm continued to manage effectively in the face of a difficult environment induced by the COVID-19 pandemic. The company’s latest admission data suggest that senior housing is in the process of stabilization and recovery. The company’s 2022 outlook anticipates acceleration in senior housing admissions during the second half of 2022.
Strong Solvency: Chemed exited 2021 with cash and cash equivalents of $32.9 million, marking a significant decline from $162.7 million at the end of 2020. Meanwhile, long-term debt at 2021-end was $185 million, much higher than the current cash and cash equivalents level. However, while exiting the fourth quarter, the company did not report any short-term payable debt in its balance sheet, implying that the solvency level of Chemed is pretty promising.
Downsides
Pandemic Causes Revenue Erosion: Per data released by the National Investment Center for Seniors Housing & Care, the pandemic continues to impact senior housing occupancy. This reduced occupancy in senior housing led to a corresponding reduction in VITAS’ nursing home admissions. This is evident from the fact that nursing home patients accounted for 15.6% of VITAS’ fourth-quarter patient census compared to 18.2% of the total census just before the pandemic. During the fourth quarter, the pandemic-led disruptions to senior housing occupancy and the hospice referrals disrupted revenue growth.
Dependence on Government Mandates: Over 95% of VITAS’ revenues consist of payments from the Medicare and Medicaid programs. The segment’s levels of revenues and profitability are subject to the effect of legislative and regulatory changes, including possible reductions in coverage or payment rates, or changes in methods of payment by the Medicare and Medicaid programs.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning, and plumbing repair businesses is highly competitive. In most markets, competition is fragmented, with local and regional firms providing much of the competition. Meanwhile, the VITAS arm competes with a large number of organizations on the basis of its ability to deliver quality, responsive services.
Estimate Trend
Over the past 90 days, the Zacks Consensus Estimate for Chemed’s 2023 earnings has moved 2.3% north to $21.31.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $2.18 billion, suggesting a 2.1% increase from the 2021 reported number.
Key Picks
Some better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.
AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 23.8% versus the 62% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.