Why You Should Add Chemed (CHE) Stock to Your Portfolio Now
Chemed Corporation CHE has been gaining investor confidence on a consistently strong performance and upbeat results. Over the past six months, the company’s share price has outperformed its industry. The stock has rallied 22.3% compared with the industry’s 19% rise. Also, the company has outpaced the S&P 500’s 3.1% gain.
Chemed has a market cap of $5.13 billion. Moreover, it has delivered an average earnings surprise of 7.2% in the trailing four quarters.
With solid prospects, this Zacks Rank #2 (Buy) stock is an attractive pick for investors at the moment.
The company’s estimate revision trend for the current year has been northbound so far. Over the past 30 days, one analyst revised the estimate upward while there was no movement in the opposite direction. The magnitude of estimate revision for earnings per share inched up around 1.8% to $11.32.Per the Zacks Style Score system, Chemed boasts a favorable Growth Score of B, hinting at the stock’s solid prospects.
Our research shows that stocks with an impressive Growth Style Score of A or B when combined with a bullish Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Chemed Corporation Price
Chemed Corporation Price | Chemed Corporation Quote
In this regard, Chemed has a beneficial net margin (net income/ sales) of 11%, better than the industry’s 3.8% average. The projected annual earnings growth rate of 34.3% also compares favorably with the industry’s 24.8% tally. Moreover, the company’s debt to capital ratio of 15.7% bodes well when compared with the industry’s 42.6% figure.
Let’s find out whether the recent positive trend is a sustainable one.
Notably, Chemed has recently exited the second quarter with better-than-expected earnings and revenue figures. The company’s subsidiaries continue to register strong sales. The Roto-Rooter business saw steady growth on a robust performance by the core plumbing and drain cleaning service segments as well as a solid rise in water restoration. The expansion in adjusted operating margin also buoys optimism on the stock. Moreover, the raised guidance for 2018 indicates a brighter picture ahead.
Within Chemed’s VITAS business, management stated that the recent admission trends have been positive and the momentum is expected to continue. During second-quarter 2018, VITAS performed well financially and operationally on an increase in the geographically weighted average Medicare reimbursement rate and average daily census. A decline in Medicare Cap also lent support to revenues.
Additionally, we are encouraged by VITAS' median length of stay in the recently reported quarter, which in turn, is a key indicator of the company’s penetration into the high acuity sector of the market.
The Roto-Rooter business also saw constant growth on a stellar show by the core plumbing and drain cleaning service segments as well as firm growth in water restoration. Further, the company saw a year-over-year improvement in commercial and residential revenues.
Additionally, Chemed’s strong cash balance allows it to carry out share repurchase programs, providing hefty returns to investors. Moreover, growth in gross and operating margin raises hope.
On the flip side, reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandate pose challenges. Moreover, more than 95% of VITAS’ revenues constitute payments from the Medicare and Medicaid programs, which is a cause for concern.
Want More From the MedTech Space?
A few other top-ranked stocks in the MedTech space are Inogen Inc INGN, Integer Holdings Corporation ITGR and Patterson Companies, Inc. PDCO. While Inogen and Patterson Companies carry a Zacks Rank #2 (Buy), Integer sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen has a long-term expected earnings growth rate of 22.5% while the same for Integer Holdings and Patterson Companies is pegged at 15% and 8.3%, respectively.
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