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Why Is Chemed (CHE) Up 1.2% Since Last Earnings Report?

Zacks Equity Research
WisdomTree (WETF) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Chemed (CHE). Shares have added about 1.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Chemed due for a pullback? 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 catalysts.

Chemed Posts Segmental Growth in Q1

Chemed reported first-quarter 2019 adjusted earnings per share (EPS) of $2.92, up 7.4% year over year. The figure missed the Zacks Consensus Estimate by 2%.

Reported EPS came in at $2.70, up 1.5% year over year.

Revenues in the reported quarter increased 5.2% year over year to $462 million but missed the Zacks Consensus Estimate by 0.9%.

Segmental Details

Chemed operates through two wholly-owned subsidiaries, namely, VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).

In the first quarter, net revenues at VITAS totaled $306.8 million, reflecting an increase of 5.1% year over year. The top line improvement was driven by 0.6% growth in geographically weighted average Medicare reimbursement rate and a 6.6% rise in days-of-care. A Medicare Cap liability partially offset this revenue improvement by 1.8%. Revenues were also impacted by acuity mix shift, fluctuations in net room and board and contractual adjustments, the combination of which led to a revenue decline of 0.4% from the prior-year quarter.

Roto-Rooter reported sales of $155.3 million in the first quarter, reflecting an increase of 5.5% year over year. According to the company, revenues from water restoration increased 0.3% year over year to $27.7 million. The upside was driven by 3.4% year-over-year growth in commercial revenues and 5.9% rise in residential revenues.

Margin Details

Gross profit increased 4% year over year to $140.1 million in the first quarter of 2019. However, gross margin contracted 34 basis points (bps) year over year to 30.3%.  Adjusted operating profit saw growth of 0.6% from the year-ago period to $66.1 million. However, the adjusted operating margin contracted 65 bps to 14.3%.

Operational Update

Chemed exited the first quarter of 2019 with cash and cash equivalents of $8.8 million, a significant surge from $4.8 million at the end of 2018. The company had total debt of $100 million at the end of the first quarter, which reflected a decline from $142.5 million at the end of the year-ago quarter. During the first quarter, the company repurchased shares worth $49.2 million.

At the end of the quarter under review, net cash provided by operating activities was $73.6 million, compared with $65.2 million at the end of the year-ago period.

Guidance for 2019

Chemed has updated its guidance for 2019.

The company has reaffirmed VITAS Healthcare revenue growth (prior to Medicare Cap) rate expectation within the band of 5.5-6%. In 2019, admissions within this segment are anticipated to improve 3-4% and Average Daily Census is predicted to increase 4-5%, in line with the earlier-issued range. Medicare Cap billing limitations are expected to cap around $10 million.

The Roto-Rooter business is estimated to register revenue growth of 9-10% in the year, down from the band of 13-14% provided earlier. The projection was based on a 2% increase in job pricing, consistent growth in core plumbing plus drain cleaning services as well as revenue generation from water restoration services.

The Zacks Consensus Estimate for 2019 revenues is pegged at $1.90 billion.

Adjusted EPS guidance for 2019 has been reiterated at the range of $12.65-$12.85. The Zacks Consensus Estimate of $12.77 is within the guided range provided by the company.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Chemed has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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.

Outlook

Chemed has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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