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Why Is Chemed (CHE) Down 7.8% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Chemed Corp. (CHE - Free Report) . Shares have lost about 7.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Chemed Q2 Earnings & Revenues Rise Y/Y, View Revised

Chemed’s second-quarter 2017 adjusted earnings per share (EPS) were $2.15, as compared to the year-ago adjusted EPS figure of $1.80, up 19.4% year over year. The Zacks Consensus Estimate was pegged at $1.88.

Including one-time items, the company reported second-quarter net loss of $1.35 per share, comparing unfavorably with earnings of $1.48 a year ago.

Quarter in Details

Revenues in the quarter increased 6.3% year over year to $415.1 million, beating the Zacks Consensus Estimate of $405.4 million.

Chemed currently operates through two wholly-owned subsidiaries, namely, VITAS Healthcare Corporation – a major provider of end-of-life care – and Roto-Rooter – a leading commercial and residential plumbing and drain cleaning services provider.

In the second quarter, net revenue at VITAS Healthcare totaled $284.7 million, reflecting an increase of 2.1% year over year. The quarter’s revenues were driven by a 1.7% increase in the average net Medicare reimbursement rate and a 2.8% rise in average daily census. However, this was offset by acuity mix shift which negatively impacted revenues by 2.5%.

Roto-Rooter reported sales of $130.3 million in the second quarter, up 16.7% year over year. According to the company, revenues from water restoration increased 72.1% year over year to $20.9 million.

Gross margin expanded 189 basis points (bps) year over year to 32.1%. Adjusted operating margin expanded 139 bps to 14.6% in the quarter on a 9.6% rise in selling, general and administrative expenses to $68.7 million.

Chemed exited the second quarter of 2017 with total cash and cash equivalents of $13.8 million, down from $47 million at the end of first-quarter 2017. The company had total debt of $125.0 million at the end of the second quarter, compared with $146.9 million at the end of the preceding quarter. As of Jun 30, 2017, the company had approximately $269 million in undrawn borrowing capacity under its existing five-year credit agreement.

During the second quarter, the company repurchased shares worth $30.8 million. In Mar 2017, the board had authorized an additional 100 million for Chemed’s existing share repurchase plan. As of Jun 30, 2017, the company had $65.1 million of remaining share repurchase authorization under the plan.

2017 Outlook

VITAS Healthcare revenue growth projection for 2017 was revised downward to the range of 2% to 3% prior to the Medicare Cap from the earlier range of 4% to 5%. Also, the admissions and Average Daily Census in 2017 is expected to increase 3% to 5% (earlier it was 3% to 4%). Medicare Cap billing limitations are expected at around $2.5 million in 2017, while it was around $3.7 million earlier.

The Roto-Rooter business is estimated to grow 12% to 13% in the full year, as compared with the earlier provided range of 3% to 4%. The raised guidance was backed by a 2% increase in job pricing and water restoration services growth.

Full-year adjusted EPS is expected to grow in the range of $8.10 to $8.20 ($7.80 to $8.00 previously) as compared with $7.24 reported in 2016.

How Have Estimates Been Moving Since Then?

Following the release and in the last month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter

Chemed Corp. Price and Consensus

 

VGM Scores

At this time, the stock has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising.  It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.




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