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Chemed Banks on Roto-Rooter Sales, Focuses on Vitas Revival

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On Dec 4, we issued an updated research report on Chemed Corporation (CHE - Free Report) . The stock currently carries a Zacks Rank #2 (Buy).

Over the last three months, Chemed has been trading above the broader industry. The stock has gained 24.1% against the industry’s decline of 7.9%. Improvement in average net Medicare reimbursement rate and an increase in average daily census during the recently-reported third quarter were encouraging. The raised outlook for the Roto-Rooter segment and earnings per share is indicative of the company’s expectations of improved operating results in the upcoming quarters, which in turn boosts investors’ optimism on the stock.

Within Chemed’s VITAS business, management noted that the recent admission trends have been positive and are expected to continue. During third-quarter 2017, VITAS performed well, financially and operationally, on the back of an increase in the geographically weighted average Medicare reimbursement rate and rise in average daily census.

The company continues to display robust performance in the Roto-Rooter business on strength in core plumbing and drain cleaning service segments. The comapny has also witnessed a solid growth in water restoration.

 

 

Additionally, the company’s strong cash balance enables it to carry out share repurchase programs, providing solid returns to investors. Moreover, the expansion in gross and operating margin in the last reported quarter buoys optimism.

However, headwinds like expensive valuation, reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandate pose challenges for Chemed. Moreover, more than 90% of VITAS’ revenues are payments from the Medicare and Medicaid programs which raise concerns. Also, a tweaked guidance for Medicare Cap billing limitations is dampening.

Estimate Revision Trend

The company’s estimate revision trend for the current year is positive. In the past 60 days, one analyst revised estimate upward, with no movement in the opposite direction. The magnitude of estimate revision for earnings increased around 2.3% to $8.39.

Other Key Picks

A few other top-ranked medical stocks are PetMed Express, Inc. (PETS - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Myriad Genetics, Inc. (MYGN - Free Report) . Notably, PetMed, Align Technology and Myriad Genetics sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 83.9% over a year.

Align Technology has a long-term expected earnings growth rate of 28.9%. The stock has gained 134.7% in a year.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has gained 94.9% in a year’s time.

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