Chemed Corporation (CHE - Free Report) has been gaining investor confidence on consistently strong performance and upbeat results. Over the past three months, the company’s share price has outperformed its industry. The stock has gained 30.1% compared with the industry’s 1.8%. Also, the company has outperformed the S&P 500’s 1% gain.
Chemed has a market cap of $5.26 billion. Moreover, it has delivered an average earnings beat of 9.6% in the trailing four quarters.
With solid prospects, this Zacks Rank #2 (Buy) stock is an attractive pick for investors at the moment.
The company’s estimate revision trend for the current year has been 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 per share increased around 3.4% to $11.08.
Per the Zacks Style Score system, Chemed sports a Growth Score of A, which hints at solid prospects.
Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
In this regard, Chemed has a favorable net margin (net income/ sales) of 6.7%, better than the industry’s 2.9%. The projected annual earnings growth rate of 30% compares favorably with the industry’s 23.9%. Moreover, the debt to capital ratio of 20.7% bodes well when compared with the industry’s 42.6%.
Let’s find out whether the recent positive trend is a sustainable one.
Chemed kick-started 2018 on a solid note, with earnings and revenues beating the Zacks Consensus Estimate. The stellar performance was driven by steady year-over-year revenue growth in both of the company’s subsidiaries.
Within Chemed’s VITAS business, management noted that the recent admission trends have been positive and the momentum is expected to continue. During first-quarter 2018, VITAS performed well financially and operationally on an increase in the geographically weighted average Medicare reimbursement rate and average daily census. A decline in Medicare Cap also lent support to revenues.
Moreover, we are encouraged by VITAS' median length of stay in the recently reported quarter, which in turn is a key indicator of the company’s penetration into the high acuity sector of the market.
The Roto-Rooter business also saw consistent growth on strong performance by the core plumbing and drain cleaning service segments as well as solid growth in water restoration. Further, the company saw year-over-year rise in commercial and residential revenues.
Additionally, Chemed’s strong cash balance allows it to carry out share repurchase programs, providing solid returns to investors. Moreover, the expansion in gross and operating margin buoys optimism.
On the flip side, reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandate pose challenges. Moreover, more than 95% of VITAS’ revenues are payments from the Medicare and Medicaid programs which raises concerns.
Other Key Picks
Other top-ranked stocks in the broader medical sector are Intuitive Surgical (ISRG - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Baxter International Inc. (BAX - Free Report) . While Intuitive Surgical sports a Zacks Rank #1, Align Technology and Baxter carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intuitive Surgical has a long-term expected earnings growth rate of 12.1%.
Align Technology has long-term expected earnings growth rate of 29.2%.
Baxter International has a long-term expected earnings growth rate of 13.4%.
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