Chemed (CHE) Up on Roto-Rooter Sales Growth, Strong Admissions
Chemed’s CHE Roto-Rooter business has been registering robust performance over the past few quarters. A good solvency position buoys optimism. The company currently carries a Zacks Rank #2 (Buy).
Over the past year, Chemed has outperformed its industry. The stock has gained 8% against the industry's 22.8% fall. Chemed ended the fourth quarter of 2022 with an earnings and revenue beat.
The robust performance of the Roto-Rooter segment drove the top line. The company recorded substantial increases in drain cleaning, plumbing, excavation and water restoration revenues in the quarter under review. In the fourth quarter, the segment’s revenues rose 6.1% year over year. Total Roto-Rooter branch commercial revenues rose 8.7% on a 5.5% increase in drain cleaning revenues, a 13.8% rise in plumbing, 5.1% growth in excavation revenues and a 27.3% hike in water restoration revenues.
Total Roto-Rooter branch residential revenues registered an increase of 5%. This aggregate residential revenue growth consisted of drain cleaning declining 2.1%, plumbing expanding 7%, excavation increasing 4.9% and water restoration increasing 13.2%. The company anticipates Roto-Rooter's revenue growth at 5-5.5% for 2023.
In the fourth quarter, admissions were slightly above that of the third quarter. The average length of stay in the quarter was 103.9 days compared to 97.9 days in the fourth quarter of 2021. Chemed’s median length of stay was 16 days in fourth-quarter 2022 compared to 15 days in the fourth quarter of 2021. This growth in median length of stay is attributed to the successful execution of the company’s community access initiative, as well as the indications of patients accessing the hospice benefit in timeframes closer to pre-pandemic levels.
Chemed Corporation Price
Chemed Corporation price | Chemed Corporation Quote
On the flip side, Chemed’s VITAS revenues registered a 2.5% year-over-year decline in fourth-quarter 2022, raising apprehension. The VITAS arm continued to be challenged by pandemic-related issues, including healthcare labor shortages, disruption in senior housing occupancy and related hospice referrals.
In the reported quarter, VITAS accrued $2.7 million in Medicare Cap billing limitations compared to $3 million in the fourth quarter of 2021.
Meanwhile, the gross profit declined 3.7% year over year in the fourth quarter of 2022. The gross margin contracted 178 basis points (bps) year over year. The adjusted operating profit decreased 11%. The adjusted operating margin contracted 249 bps to 18.3% year over year.
The deterioration in short-term cash levels is worrisome. The persistent macroeconomic headwinds related to the volatility in COVID-19 trends, rising inflationary pressure and other challenges continue to hamper business performance. A competitive landscape and reimbursement headwinds are other challenges.
Some other top-ranked stocks in the broader medical space are Hologic, Inc. HOLX, Henry Schein, Inc. HSIC and Avanos Medical, Inc. AVNS.
Hologic, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 15.2%. HOLX’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 30.6%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hologic has gained 1.7% compared with the industry’s 17.5% growth in the past year.
Henry Schein, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 8.1%. HSIC’s earnings surpassed estimates in three of the trailing four quarters and matched the same in the other, the average beat being 2.9%.
Henry Schein has lost 12.4% compared with the industry’s 10.9% decline over the past year.
Avanos, carrying a Zacks Rank #2 at present, has an estimated growth rate of 1.8% for 2023. AVNS’ earnings surpassed estimates in all the trailing four quarters, the average beat being 11%.
Avanos has lost 13.7% compared with the industry’s 17.5% decline over the past year.
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