Chemed (CHE) Down 0.8% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Chemed (CHE). Shares have lost about 0.8% 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 its most recent earnings report in order to get a better handle on the important drivers.
Chemed’s second-quarter 2018 adjusted earnings per share (EPS) were $2.81, up 30.7% from a year ago. The figure also surpassed the Zacks Consensus Estimate of $2.68.
Quarter in Details
Revenues in the quarter increased 6.4% year over year to $441.8 million, beating the Zacks Consensus Estimate of $432.3 million.
Chemed operates through two wholly-owned subsidiaries, namely, VITAS Healthcare Corporation (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing and drain cleaning service provider).
In the second quarter, net revenues at VITAS Healthcare totaled $297 million, reflecting an increase of 6.3% year over year. Revenues were driven by a 0.6% increase in the average net Medicare reimbursement rate and a 7.6% rise in average daily census. A Medicare Cap liability affected revenue growth by 0.1%. However, the revenue growth was partially offset by acuity mix shift which impacted revenues by 1.6%.
Roto-Rooter reported sales of $145 million in the second quarter, up 11.9% year over year. According to the company, revenues from water restoration increased 18.4% year over year to $24.8 million.
Gross margin contracted 30 basis points (bps) year over year to 30.8%. Adjusted operating margin expanded 70 bps to 15.3% in the quarter owing to a 0.5% contraction in selling, general and administrative expenses to $68.3 million.
Chemed exited the second quarter of 2018 with total cash and cash equivalents of $12.7 million, down from $13.7 million at the end of first quarter of 2018. The company had total debt of $103.4 million at the end of the second quarter, reflecting a sharp decrease from $132.5 million at the end of the first quarter. As of Jun 30, 2018, the company had approximately $310 million of undrawn borrowing capacity under its existing five-year credit agreement.
During the second quarter, the company repurchased shares worth $3.2 million. The board has authorized an additional $150 million for stock repurchase under Chemed’s existing plan. As of Jun 30, 2018, the company had $121 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% to 5%, up from the previously provided band of 2.5% to 3.5%, prior to the Medicare Cap. Also, admissions are expected to increase 4.5% to 5% and Average Daily Census in 2018 is expected to rise 6.5%. Medicare Cap billing limitations are expected at around $2.5 million in the second half of 2018.
The Roto-Rooter business is now likely to grow 12% to 13% compared to 4% to 5% provided previously in the full year. The guidance was backed by a 2% increase in job pricing and water restoration services growth.
Full-year adjusted EPS is now expected to grow in the band of $11.35 to $11.55 compared to the previously provided range of $10.60 to $10.85. The Zacks Consensus Estimate of $11.12 falls below the guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Chemed has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for growth and momentum investors while value investors may want to look elsewhere.
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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