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Here's Why You Should Add Chemed (CHE) to Your Portfolio Now

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Chemed Corporation (CHE - Free Report) has been gaining from robust segmental and international growth. The company’s segmental prospects as well as 2020 guidance are expected to further drive its rally.

Over the past year, shares of the Zacks Rank #1 (Strong Buy) company have gained 27.9% against the industry’s 6.2% decline. Also, the company has outperformed a 5.3% decline of the S&P 500 during the same period.

Per our Style Score, Chemed has a Growth Score of A, which is reflective of its solid long-term growth prospects. Our research shows that stocks with a Growth Style Score of A or B combined with a Zacks Rank #1 or 2 (Buy) offer the best upside potential.

The renowned hospice care provider has a market capitalization of $6.76 billion. The company projects 18% growth for the next five years and expects to maintain its strong segmental performance. Further, it surpassed earnings estimates in three of the trailing four quarters, delivering a positive surprise of 3.4%, on average.



Let’s delve deeper.

Q4 Results Impressive: We are upbeat the company’s better-than-expected results in the fourth quarter of 2019. We are also optimistic about its solid revenue growth across both key subsidiaries. Rise in days-of-care within the VITAS segment, Roto-Rooter’s recent acquisitions in California and franchise territories held by Chemed’s largest independent franchisees are impressive. Expansion in both margins in the quarter buoys optimism.

VITAS Segment Holds Potential: Chemed’s strong performance from the VITAS business over the past few quarters bode well. In the fourth quarter, net revenues at VITAS reflected a significant year-over-year improvement, driven by an increase in geographically weighted average Medicare reimbursement rate and rise in days-of-care.

Total admissions in the reported quarter also rose year over year. Notably, the company saw growth in admissions for three straight quarters. Also, average revenue per patient per day in the fourth quarter of 2019 saw robust year-over-year growth.

Expansion of Roto-Rooter Continues: We are optimistic about the robust performance of the operating segment in the fourth quarter of 2019. Total commercial revenues (including acquisitions) registered robust growth on rise in drain cleaning revenues, and improvement in commercial plumbing and excavation.

However, despite strong upside potential of the company, its top-line growth might get affected by reimbursement headwinds. The Centers for Medicare & Medicaid Services (CMS) has modified the Medicare hospice reimbursement per diem system, which is expected to be a major headwind for the company.

Apart from that, business seasonality has been affecting the company, as a major portion of the VITAS business operates in Florida. The majority of Chemed’s patients are Medicare recipients, who are retirees relocating to Florida during winter. This results in higher admissions and revenues for the company’s business in Florida during the same period. A stiff competitive landscape is another major concern for the company.

Estimate Trend

Chemed is witnessing a positive estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 4.3% north to $16.34.

The Zacks Consensus Estimate for the company’s first-quarter fiscal 2020 revenues is pegged at $523.6 million, suggesting a 13.3% rise from the year-ago reported number.

Other Key Picks

Some other top-ranked stocks from the broader medical space are ResMed Inc. (RMD - Free Report) , Medtronic plc (MDT - Free Report) and Hill-Rom Holdings, Inc. (HRC - Free Report) .

ResMed has a projected long-term earnings growth rate of 14.4%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.

Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.

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