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Chemed Gains Ground on Solid VITAS & Roto-Rooter Businesses

Zacks Equity Research
Ventas (VTR) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

On Feb 27, we issued an updated research report on Chemed Corporation CHE. This Zacks Rank #1 (Strong Buy) stock currently operates two wholly-owned subsidiaries — VITAS Healthcare and Roto-Rooter. Over the past few quarters, VITAS has been registering solid admissions and expanded average daily census. Meanwhile, the Roto-Rooter business is seeing growth on strong performance by the core plumbing and drain cleaning service segments as well as solid improvement in water restoration.

In the past six months, Chemed has consistently outperformed the S&P 500 market. The stock has gained 3.2% versus the market’s 3.5% decline.

Chemed exited 2018 on a promising note. The company registered strong year-over-year growth in earnings and revenues. Notably, the company witnessed solid revenue growth across its key subsidiaries. 

Chemed has seen strong performance in the VITAS business over the past few quarters. During fourth-quarter 2018, VITAS admissions generated from hospitals rose 2% and made up 50% of total admissions. Also, home-based admissions rose 2.5%. For 2019, the company projects VITAS Healthcare revenue growth (prior to Medicare Cap) within 5.5-6%.

Also, we are upbeat about Roto-Rooter which is currently the nation’s leading provider of plumbing and drain cleaning services. Through its network of company-owned branches, independent contractors and franchises, Roto-Rooter offers plumbing and drain cleaning services to more than 90% of the U.S. population. During fourth-quarter 2018, Roto-Rooter reported 10.6% growth year over year. 

We are currently looking forward to Roto-Rooter’s recently-made acquisitions of certain franchises in California. According to the company, it has acquired five formerly independent Roto-Rooter franchises covering several areas of Northern California. This is its largest franchise acquisition to date, with annual sales of $22 million.

Chemed’s capital deployment policy is based on suitable acquisitions and solid return of cash to shareholders through dividends and buybacks. 

Other Key Picks

A few other top-ranked stocks in the broader medical space are Penumbra, Inc. PEN, Wright Medical Group N.V. WMGI and DexCom, Inc. DXCM. Notably, each of these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra’s long-term earnings growth rate is expected at 20%.

Wright Medical’s long-term earnings growth rate is expected at 11%.

DexCom’s second-quarter earnings per share are projected to grow 160%.

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