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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 the strong prospects of the VITAS Healthcare and Roto-Rooter segments. The company delivered favorable solvency as of the end of the third quarter of 2023, generating investors’ optimism. However, macroeconomic headwinds and competitive disadvantages are discouraging for the company.
In the past year, this Zacks Rank #3 (Hold) stock has increased 18% compared to the 6.4% rise of the industry and a 21.2% rise of the S&P 500 composite.
The renowned hospice care provider has a market capitalization of $8.95 billion. Chemed projects an estimated earnings growth rate of 11.8% compared with 11.4% of the industry. In the last reported quarter, the company delivered an average surprise of 8.13%.
Let’s delve deeper.
Upsides
Bright Prospects of the VITAS Segment: Chemed’s VITAS segment is showing consistent performance, banking on the strong adoption of its advanced hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy and volunteers. This business is benefiting as Medicare patients relocating to Florida during the winter months generally result in higher admissions and revenues for Florida programs during that period.
Image Source: Zacks Investment Research
VITAS' improving operating metrics are a direct result of its retention and hiring program launched on Jul 1 last year. This program was designed to stabilize turnover in the tenured staff and expand patient capacity. Further, in the third quarter, the company continues to expand its licensed staff and related patient capacity.
Roto-Rooter Continues to Expand: In the post-pandemic era, the company’s management believes Roto-Rooter is well-positioned for growth and anticipates the continued expansion of the segment’s market share. This is due to strengths in the core competitive advantages in terms of brand awareness, customer response time and 24/7 call centers and Internet presence.
The Roto-Rooter marks are among the most highly recognized trademarks and service marks in the United States and a valuable asset to the company. This is a significant factor in the marketing of Roto-Rooter’s franchises, including the products and services. In the third quarter, Roto-Rooter branch commercial revenues inched up 1.5% from the last year on 1.8% growth in excavation revenues and a 2% hike in commercial water restoration revenues.
Strong Solvency and Capital Structure: Chemed exited the third quarter of 2023 with cash and cash equivalents of $173 million, while the long-term debt was nil. This is good news regarding Chemed’s solvency position, as the company holds sufficient cash for short-term debt repayment in case of an economic downturn.
The cumulative net cash provided by operating activities at the end of the third quarter of 2023 was $221.7 million compared with $209.7 million in the year-ago period. Further, the company has a consistent dividend-paying history, with the five-year annualized dividend growth of 6.04%.
Downsides
Macroeconomic Headwinds Put Pressure on Margins: In recent times, Chemed’s margin performance has been affected by the inflationary trend, increased logistics costs and higher employee-related expenses. In the third quarter, the company noted that the full-year 2023 revenue growth is expected to be negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to a full year of sequestration in 2023.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning and plumbing repair businesses is highly competitive. Competition is fragmented in most markets, with local and regional firms being the key competitors. Moreover, Hospice care in the United States is competitive as programs for hospice services are generally uniform. As the hospice care industry is highly fragmented, VITAS competes with a large number of organizations based on its ability to deliver quality, responsive services.
Estimate Trend
The Zacks Consensus Estimate for Chemed’s 2023 earnings per share (EPS) has remained constant at $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 5.79% rise from the year-ago reported number.
Haemonetics has an estimated earnings growth rate of 28.4% for fiscal 2024 compared with the industry’s 15.3%. HAE’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 16.1%. Its shares have decreased 6.6% compared to the industry’s 0.5% fall in the past year.
DaVita, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 17.3% compared with the industry’s 11.3%. Shares of the company have increased 30.7% compared with the industry’s 6.4% rise over the past year.
DVA’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 27.5% compared with the industry’s 13.9%. Shares of HQY have increased 29.2% against the industry’s 10.3% decline over the past year.
HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 16.5%. In the last reported quarter, it delivered an average earnings surprise of 22.5%.
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Here's Why You Should Retain Chemed (CHE) Stock for Now
Chemed Corporation (CHE - Free Report) is well-poised for growth in the coming quarters, backed by the strong prospects of the VITAS Healthcare and Roto-Rooter segments. The company delivered favorable solvency as of the end of the third quarter of 2023, generating investors’ optimism. However, macroeconomic headwinds and competitive disadvantages are discouraging for the company.
In the past year, this Zacks Rank #3 (Hold) stock has increased 18% compared to the 6.4% rise of the industry and a 21.2% rise of the S&P 500 composite.
The renowned hospice care provider has a market capitalization of $8.95 billion. Chemed projects an estimated earnings growth rate of 11.8% compared with 11.4% of the industry. In the last reported quarter, the company delivered an average surprise of 8.13%.
Let’s delve deeper.
Upsides
Bright Prospects of the VITAS Segment: Chemed’s VITAS segment is showing consistent performance, banking on the strong adoption of its advanced hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy and volunteers. This business is benefiting as Medicare patients relocating to Florida during the winter months generally result in higher admissions and revenues for Florida programs during that period.
Image Source: Zacks Investment Research
VITAS' improving operating metrics are a direct result of its retention and hiring program launched on Jul 1 last year. This program was designed to stabilize turnover in the tenured staff and expand patient capacity. Further, in the third quarter, the company continues to expand its licensed staff and related patient capacity.
Roto-Rooter Continues to Expand: In the post-pandemic era, the company’s management believes Roto-Rooter is well-positioned for growth and anticipates the continued expansion of the segment’s market share. This is due to strengths in the core competitive advantages in terms of brand awareness, customer response time and 24/7 call centers and Internet presence.
The Roto-Rooter marks are among the most highly recognized trademarks and service marks in the United States and a valuable asset to the company. This is a significant factor in the marketing of Roto-Rooter’s franchises, including the products and services. In the third quarter, Roto-Rooter branch commercial revenues inched up 1.5% from the last year on 1.8% growth in excavation revenues and a 2% hike in commercial water restoration revenues.
Strong Solvency and Capital Structure: Chemed exited the third quarter of 2023 with cash and cash equivalents of $173 million, while the long-term debt was nil. This is good news regarding Chemed’s solvency position, as the company holds sufficient cash for short-term debt repayment in case of an economic downturn.
The cumulative net cash provided by operating activities at the end of the third quarter of 2023 was $221.7 million compared with $209.7 million in the year-ago period. Further, the company has a consistent dividend-paying history, with the five-year annualized dividend growth of 6.04%.
Downsides
Macroeconomic Headwinds Put Pressure on Margins: In recent times, Chemed’s margin performance has been affected by the inflationary trend, increased logistics costs and higher employee-related expenses. In the third quarter, the company noted that the full-year 2023 revenue growth is expected to be negatively impacted by 75 basis points as a result of the sequestration relief in the first half of 2022 compared to a full year of sequestration in 2023.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning and plumbing repair businesses is highly competitive. Competition is fragmented in most markets, with local and regional firms being the key competitors. Moreover, Hospice care in the United States is competitive as programs for hospice services are generally uniform. As the hospice care industry is highly fragmented, VITAS competes with a large number of organizations based on its ability to deliver quality, responsive services.
Estimate Trend
The Zacks Consensus Estimate for Chemed’s 2023 earnings per share (EPS) has remained constant at $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 5.79% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics (HAE - Free Report) , DaVita (DVA - Free Report) and HealthEquity (HQY - Free Report) .
Haemonetics has an estimated earnings growth rate of 28.4% for fiscal 2024 compared with the industry’s 15.3%. HAE’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 16.1%. Its shares have decreased 6.6% compared to the industry’s 0.5% fall in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DaVita, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 17.3% compared with the industry’s 11.3%. Shares of the company have increased 30.7% compared with the industry’s 6.4% rise over the past year.
DVA’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.
HealthEquity, carrying a Zacks Rank #2 at present, has an estimated long-term earnings growth rate of 27.5% compared with the industry’s 13.9%. Shares of HQY have increased 29.2% against the industry’s 10.3% decline over the past year.
HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 16.5%. In the last reported quarter, it delivered an average earnings surprise of 22.5%.