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Chemed (CHE) Up 13.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Chemed (CHE - Free Report) . Shares have added about 13.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Chemed due for a pullback? 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 catalysts.

Chemed Earnings Top Estimates in Q2, Margins Expand

Chemed Corporation reported second-quarter 2019 adjusted earnings per share (EPS) of $3.36, up 19.6% year over year. The figure beat the Zacks Consensus Estimate by 8.7%.

Reported EPS came in at $3.08, down 5.8% year over year.

Revenues in the reported quarter increased 7.2% year over year to $474 million but missed the Zacks Consensus Estimate by 0.9%.

Segmental Details

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 second quarter, net revenues at VITAS totaled $313 million, reflecting an increase of 5.4% year over year. The top-line improvement was driven by 0.5% growth in geographically weighted average Medicare reimbursement rate and a 5.9% rise in days-of-care. A Medicare Cap liability partially offset this revenue improvement by 0.9%. Revenues were also impacted by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which led to a revenue decline of 0.3% from the prior-year quarter.

Roto-Rooter reported sales of $161 million in the second quarter, reflecting an increase of 10.9% year over year. According to the company, revenues from water restoration increased 14% year over year to $28.2 million. The upside was driven by 11% year-over-year growth in commercial revenues and 9.9% rise in residential revenues.

Margin Details

Gross profit increased 10.2% year over year to $149.9 million in the second quarter of 2019. Gross margin expanded 86 basis points (bps) year over year to 31.7%.  Adjusted operating profit saw growth of 15.7% from the year-ago period to $78.4 million. However, the adjusted operating margin expanded 121 bps to 16.6%.

Operational Update

Chemed exited the second quarter of 2019 with cash and cash equivalents of $3.3 million, a significant decline from $8.8 million at the end of the first quarter. The company had long-term debt of $85 million at the end of the second quarter, which declined from $100 million at the end of the first quarter. During the second quarter, the company repurchased shares worth $22.7 million.

Year-to-date net cash provided by operating activities was $108.9 million, compared with $121 million at the end of the year-ago period.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Chemed has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions looks promising. It comes with little surprise Chemed has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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