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Why Is Chemed (CHE) Down 2.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Chemed (CHE - Free Report) . Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

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

Chemed's Q3 Earnings Beat Estimates, View Up

Chemed delivered third-quarter 2018 adjusted earnings per share (EPS) of $3.07, up 42.8% from the year-ago period. The bottom line sailed past the Zacks Consensus Estimate of $2.79.

Quarter in Detail

Revenues in the reported quarter increased 6.4% year over year to $444.2 million, beating the Zacks Consensus Estimate of $442 million.

Chemed operates through two wholly-owned subsidiaries, namely VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).

In the third quarter, net revenues at VITAS totaled $302 million, reflecting an increase of 6.5% year over year. The top line was driven by 0.8% growth in geographically weighted average Medicare reimbursement rate and a 7.8% rise in average daily census. A Medicare Cap liability affected this revenue improvement by 0.6%. The revenue strength was partially offset by acuity mix shift, which negatively impacted revenues by 1.8%.

Roto-Rooter reported sales of $142 million in the third quarter, up 12.1% year over year. According to the company, revenues from water restoration climbed 18.3% year over year to $25 million.

Gross margin expanded 26 basis points (bps) year over year to 31.3%. Adjusted operating margin grew 117 bps to 16.1% in the quarter under review on the back of a 14.7% climb in operating profit.

Chemed exited the third quarter of 2018 with total cash and cash equivalents of $67.5 million, a significant rise from $12.7 million at the end of the second quarter of 2018. The company had total debt of $130 million at the end of the third quarter, reflecting a sharp rise from $103.4 million at the end of the second quarter. As of Sep 30, 2018, the company had approximately $284 million of undrawn borrowing capacity under its existing five-year credit agreement.

During the third quarter, the company repurchased shares worth $37.7 million. The board has authorized an additional $150 million for stock buyback under Chemed’s existing plan. As of Sep 30, 2018, the company had $84 million of remaining share repurchase authorization under this plan.

2018 Outlook Raised

The company now projects VITAS Healthcare revenue growth for 2018 in the range of 4.5- 5%, tightened from the previously provided band of 4-5%, prior to the Medicare Cap. Also, admissions are anticipated to improve 3.5-5% and Average Daily Census in 2018 is predicted to ascend 6.7%. Medicare Cap billing limitations are expected at around $1.3 million in the fourth quarter of 2018.

The Roto-Rooter business is now likely to augment 13-14% compared with the earlier-provided range of 12-13% for the full year. The view was backed by a 2% increase in job pricing, consistent growth in core plumbing plus drain cleaning services as well as revenue generation from water restoration services.

Full-year adjusted EPS is now envisioned to grow in the band of $11.80-$11.90 compared with the past forecast of $10.60-$10.85. The Zacks Consensus Estimate of $11.48 falls below the expected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Chemed has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Chemed has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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