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Chemed's VITAS Business Strong, Weak Acuity Mix Shifts a Woe

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On Jun 10, we issued an updated research report on Chemed Corporation (CHE - Free Report) . The company currently operates two wholly-owned subsidiaries — VITAS Healthcare and Roto-Rooter.

Over the past three months, shares of Chemed have consistently outperformed its industry. The stock has gained 7.4% compared with the industry’s 2.5% rise. Chemed exited 2018 on a promising note. The company registered strong year-over-year growth in revenues. It is optimistic to note that the company witnessed a solid revenue rise across its key subsidiaries.

VITAS has been registering an expanded average daily census. Meanwhile, the Roto-Rooter business has been seeing growth on the back of a strong performance by the core plumbing and drain cleaning service segments as well as a robust trend in water restoration.

Moreover, we are upbeat about Roto-Rooter, which is currently the nation’s leading provider of plumbing and drain cleaning services. Through its network of company-owned branches, independent contractors and franchises, Roto-Rooter offers plumbing and drain cleaning services to more than 90% of the U.S. population.

On the flip side, Chemed exited first-quarter 2019 on a dull note. Both earnings and revenues missed the respective Zacks Consensus Estimate in the reported quarter. An unfavorable acuity mix shift, fluctuations in net room and board plus contractual adjustments dented the top line during the quarter.

Chemed’s capital deployment policy is based on its suitable acquisitions and a solid return of cash to shareholders through dividends and buybacks. 

Zacks Rank & Key Picks

Chemed currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are Cerner Corporation , Penumbra (PEN - Free Report) and Bruker Corporation (BRKR - Free Report) . While Cerner sports a Zacks Rank #1 (Strong Buy), Penumbra and Bruker carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cerner’s long-term earnings growth rate is expected to be 13.5%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

Bruker’s long-term earnings growth rate is estimated at 11.7%.

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