Chemed Corporation CHE is well-poised to grow in the coming quarters due to strong operational growth in the VITAS arm, driven by its retention and hiring program. Roto-Rooter maintains its core competitive edge in a challenging operational environment, which is highly promising. Sound financial stability also bodes well for the stock. Meanwhile, ongoing macroeconomic headwinds and competitive pressures pose risks for Chemed’s operations.

In the past year, this Zacks Rank #3 (Hold) stock has dropped 5.7% in value against the industry’s 20.3% rise and the S&P 500 composite’s 23.8% growth.

The renowned hospice care provider has a market capitalization of $8.46 billion. Chemed has an earnings yield of 4.46% compared with the industry’s 4.08% yield. Further, it has a historical average earnings growth rate of 14.1%, well ahead of the industry’s 3.7% and the S&P 500 composite’s 8.1% growth.

Let’s delve deeper.

Upsides for CHE

VITAS Prospects Bright: The segment is consistently registering accelerated improvement, supported by increased growth in licensed healthcare professionals and strong admissions. Corresponding growth in the patient census has returned VITAS to normalized operating conditions. VITAS delivered 17.3% year-over-year growth in the third quarter of 2024, backed by a full-quarter contribution from the acquisition of Covenant Health. This acquisition boosted VITAS’ operational metrics, including a 6.3% improvement in admissions and a 15.5% increase in ADC (Average Daily Census). Management is optimistic about VITAS consistently demonstrating the ability to accelerate the hiring and retention of licensed healthcare professionals. This has translated into continued strong admission and census growth.

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Roto-Rooter Shows Resilience: Even with the ongoing headwinds in consumer sentiment and consumer spending since early 2023, Chemed’s management has remained bullish on Roto-Rooter’s growth potential, driven by its proven ability to navigate tough times.The brand continues to maintain its core competitive advantages in terms of brand awareness, customer response time, 24/7 call centers and aggressive internet presence, all of which should help it expand its market share.

Over the years, the company has introduced several initiatives that will have a significant positive impact on this sector, including the addition of commercial sales staff and enhanced customer relationship management capabilities. Furthermore, Roto-Rooter management has implemented specific targeted improvement programs across some of its branches that are responsible for the majority of the revenue decline. It anticipates these efforts will drive positive results in the upcoming quarters.

Strong Solvency and Capital Structure: At the end of the third quarter of 2024, Chemed reported cash and cash equivalents of $238.5 million and no debt on the balance sheet. In addition, the company repurchased 100,000 shares of Chemed stock for $57.8 million, which equates to a cost of $578.21 per share, and had approximately $161.8 million of remaining share repurchase authorization under its plan. Chemed also maintains a solid track record of dividend payments, with a five-year annualized dividend growth of 6.75%.

Downsides for CHE Stock

Macroeconomic Headwinds: The ongoing global economic conditions, such as general labor, supply chain and inflationary pressure, along with political and regulatory developments, are escalating expenses, particularly in staffing and labor costs. In recent times, Chemed’s performance has been affected by the inflationary trend, increased logistics costs and higher employee-related expenses. In the third quarter, the cost of services provided and goods sold rose 9.3% year over year, while selling, general & administration expenses increased 2.4%.

Tough Competitive Landscape: Roto-Rooter operates in the highly competitive market for sewer, drain, and pipe cleaning and plumbing repair businesses. Competition is fragmented in most markets, with local and regional firms providing much of the competition. Hospice care in the United States is competitive as programs for hospice services are generally uniform. As the hospice care industry is highly fragmented, VITAS competes with many organizations based on its ability to deliver quality, responsive services. Both these segments could face challenges in their operations if they are unable to innovate and effectively respond to market trends.

CHE’s Estimate Trend

The Zacks Consensus Estimate for Chemed’s 2024 earnings per share (EPS) has remained constant at $23.09 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $2.42 billion. This suggests a 6.87% rise from the year-ago reported number.

Key MedTech Stocks

Some better-ranked stocks in the broader medical space are Phibro Animal Health PAHC, Veracyte VCYT and Quest Diagnostics DGX. 

Phibro Animal Health has an estimated fiscal 2025 earnings growth rate of 36.1% compared with the industry’s 13.2%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 25.47%. Its shares have surged 103.1% compared with the industry’s 15.4% growth in the past year.

PAHC sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Veracyte, carrying a Zacks Rank #2 (Buy) at present, has an estimated 2024 earnings growth rate of 137.3% compared with the industry’s 15%. Shares of the company have surged 83.7% compared with the industry’s 9.6% growth over the past year. VCYT’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 520.6%.

Quest Diagnostics, carrying a Zacks Rank #2 at present, has an earnings yield of 5.95% compared with the industry’s 4.08%. Shares of the company have rallied 31.3% compared with the industry’s 20.3% growth. DGX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.75%.

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Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report

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