Here's Why You Should Retain Chemed (CHE) Stock for Now
Chemed Corporation CHE is likely to grow in the coming quarters, backed by the solid performance of the VITAS Healthcare and Roto-Rooter segments. The increased capacity expansion derived from Chemed’s hiring and retention program is driving VITAS’ admission growth. The company’s favorable solvent position at the first quarter-end of 2023 buoys optimism.
However, escalating expenses and high dependence on government programs do not bode well for Chemed.
In the past year, this Zacks Rank #3 (Hold) stock has increased 5.6% compared to the 7.6% fall of the industry and a 14% rise of the S&P 500 composite.
The renowned hospice care provider has a market capitalization of $8.11 billion. Chemed projects a long-term estimated earnings growth rate of 8.8% compared with 10.6% of the industry. CHE’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 0.94%.
Let’s delve deeper.
Upsides
Roto-Rooter Continues to Expand: Chemed’s Roto-Rooter segment continues to be well-positioned, with the ongoing demand for key services in commercial and residential segments significantly above the pre-pandemic level. Both branch commercial and residential revenues improved in the last reported quarter.
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Management anticipates that the segment’s market share will continue its upward trend, banking on the company’s core competitive advantages in terms of brand awareness, customer response time and 24/7 call centers and internet presence.
VITAS’ Prospects Look Bright: In the first quarter of 2023, the year-over-year revenue increase in the VITAS Healthcare business segment included a 3% rise in days of care and a geographically-weighted average Medicare reimbursement rate increase of approximately 2.9%.
Chemed implemented a targeted hiring and retention bonus program at VITAS in July 2022. In the first quarter, VITAS increased its licensed healthcare staff by 200 professionals, with the majority being licensed nurses, expanding to 475.
Strong Solvency: Chemed remains well-capitalized having exited the first quarter of 2023 with cash and cash equivalents of $58.1 million. The total debt at the end of the first quarter was $21 million, much lower than the current cash level.
With the reported short-term payable debt at the quarter end being $5 million, the company holds sufficient cash for short-term debt repayment during the economic downturn. Further, the CHE’s quarter-end dividend payout rate of 7.7% seems sustainable, sequentially up from 7.5% at the end of the fourth quarter of 2022.
Downsides
Dependence on Government Mandates: The Medicare and Medicaid programs are increasing pressure to control healthcare costs and cut or limit increases in reimbursement rates for healthcare services. Like most government programs, these are subject to statutory and regulatory changes, possible retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions.
With more than 95% of VITAS’ revenues consisting of payments from the Medicare and Medicaid programs, all of these may adversely affect the level of program payments and have a material adverse effect on VITAS’ business.
Escalating Expenses: Chemed lagged earnings and revenue estimates in the first quarter. Mounting costs and expenses weighed on the company’s margins.
The persistent macroeconomic headwinds related to volatility in COVID-19 trends, rising inflationary pressure and other challenges continue to hamper business performance.
Estimate Trend
The Zacks Consensus Estimate for Chemed’s 2023 earnings per share (EPS) has remained constant at $20.77 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $2.26 billion. This suggests a 5.79% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, Zimmer Biomet ZBH and Hologic, Inc. HOLX.
Haemonetics, sporting a Zacks Rank #1 (Strong Buy) at present, has an earnings yield of 4.24% compared to the industry’s -3.29%. Haemonetics’ earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 12.21%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Haemonetics’ shares have increased 27.6% compared to the industry’s 23.2% decline in the past year.
Zimmer Biomet, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 5.29% compared to the industry’s -3.29%. Zimmer Biomet shares have risen 36.4% against the industry’s 23.2% decrease over the past year.
ZBH’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 7.38%.
Hologic, carrying a Zacks Rank #2 at present, has an earnings yield of 5.02% against the industry’s -5.92%. Shares of HOLX have risen 8.6% compared with the industry’s 9% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.32%.
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Hologic, Inc. (HOLX) : Free Stock Analysis Report
Haemonetics Corporation (HAE) : Free Stock Analysis Report
Chemed Corporation (CHE) : Free Stock Analysis Report
Zimmer Biomet Holdings, Inc. (ZBH) : Free Stock Analysis Report
