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Here's Why You Should Retain Chemed (CHE) Stock for Now

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Chemed Corporation (CHE - Free Report) is well-poised for growth in the coming quarters, backed by strength in the VITAS Healthcare and Roto-Rooter segments. The company exited the first quarter of 2023 with a favorable solvent position, generating investors’ optimism. However, escalating expenses do not bode well for Chemed.

In the past year, this Zacks Rank #3 (Hold) stock has increased 8.8% compared to the 15% fall of the industry and a 7.1% rise of the S&P 500 composite.

The renowned hospice care provider has a market capitalization of $8.11 billion. Chemed projects a long-term estimated earnings growth rate of 8.8% compared with 10.6% of the industry. CHE’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 0.94%.

Let’s delve deeper.


VITAS Prospects Look Bright: In the first quarter, the VITAS Healthcare business segment’s revenue increase of 3.8% compared to the prior year period – comprising a 3% increase in days of care and a geographically weighted average Medicare reimbursement rate increase of approximately 2.9%.

Additionally, VITAS increased its licensed healthcare staff by 200 professionals (60% of which are licensed nurses) in the first quarter of 2023. Post implementing a targeted hiring and retention wellness initiative in July 2022, VITAS expanded license staffing by 475 professionals.

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Roto-Rooter Continues to Expand: We are encouraged by Chemed’s Roto-Rooter segment, which delivered revenue growth of 7.9% year over year in the first quarter. Barring residential drain cleaning, the business witnessed continued demand for plumbing, excavation and water restoration services in the quarter under review.

Total Roto-Rooter branch commercial revenues rose 10.1% year over year. Total Roto-Rooter branch residential revenues registered growth of 7.5% from the prior-year quarter. Management believes Roto-Rooter is well-positioned for growth post-pandemic and anticipates a continued expansion of the segment’s market share, banking on the company’s core competitive advantages in terms of brand awareness, customer response time and 24/7 call centers and Internet presence.

Strong Solvency: Chemed is well-capitalized having exited the first quarter of 2023 with cash and cash equivalents of $58.1 million. The total debt at the end of the first quarter was $21 million, much lower than the current-cash level.

While exiting the quarter, the company reported short-term payable debt of $5 million. This is good news regarding Chemed’s solvency position as the company holds sufficient cash for short-term debt repayment during the economic downturn.


Mounting Expenses: Chemed reported a 274-basis point (bps) contraction in the gross margin in the first quarter of 2023, led by a 10.1% increase in the cost of products and services. The net increase of 200 professionals hired throughout the first quarter is estimated to have negatively impacted the gross margin and the adjusted EBITDA margin by 50 bps.

Estimate Trend

Chemed has been witnessing a negative estimate revision trend for 2023. The Zacks Consensus Estimate for 2023 earnings per share (EPS) has moved from $20.85 to $20.77 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $2.26 billion. This suggests a 5.8% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Zimmer Biomet (ZBH - Free Report) , Penumbra (PEN - Free Report) and Hologic, Inc. (HOLX - Free Report) .

Zimmer Biomet, sporting a Zacks Rank #1 (Strong Buy) at present, has an earnings yield of 5.42% compared to the industry’s -1.86%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zimmer Biomet shares have increased 9.2% compared to the industry’s 29.4% decline in the past year.

Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have risen 118.3% compared with the industry’s 4.7% increase over the past year.

PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.68% compared to the industry’s -7.62%. Shares of HOLX have risen 2.6% compared with the industry’s 4.7% growth over the past year.

Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.

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