Yahoo Finance Here's Why You Should Retain Chemed (CHE) Stock for Now
Chemed Corporation CHE is gaining from continued strength in the Roto-Rooter segment. The company’s earnings for the second quarter of 2022 beat the Zacks Consensus Estimate. The improvement in assisted living facility admissions buoys optimism. A favorable solvency position is encouraging too. However, the continued sales decline in the VITAS arm and pandemic-led disruptions do not bode well.
In the past year, this Zacks Rank #3 (Hold) stock has gained 4.3% against a 29.7% fall of the industry and a 14.2% drop of the S&P 500.
The renowned hospice care provider has a market capitalization of $6.66 billion. Its earnings surpassed estimates in the trailing four quarters, the average surprise being 6.3%.
In the past five years, the company registered earnings growth of 24.5% compared with the industry’s 13.2% rise and the S&P 500’s 13.4% increase. The company projects 7.1% growth for the next five years compared with the industry and the S&P 500’s projected growth rate of 11.4% and 11.4%, respectively.
Let’s delve deeper.
Factors at Play
Impressive Q2 Results: Chemed ended the second quarter with better-than-expected earnings. The year-over-year growth in adjusted earnings per share appears promising. Robust performance by the Roto-Rooter segment drove the top line. Chemed’s nursing home admissions in the second quarter rose 5.3%. Assisted living facility admissions increased 5.6% and home-based pre-admit admissions moved up 0.2% on a year-over-year basis. The expansion of gross and operating margins adds to the upsides.
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Roto-Rooter Continues to Expand: We are encouraged by Chemed’s Roto-Rooter segment, which delivered revenue growth of 6% year over year in the second quarter. The business witnessed continued demand for plumbing, drain cleaning services and water restoration services in the quarter under review. Total Roto-Rooter branch commercial revenues rose 7.5%. Total Roto-Rooter branch residential revenues registered growth of 5% on a year-over-year basis.
Management at Chemed anticipates the continued expansion of Roto-Rooter’s market share, banking on the company’s core competitive advantages in terms of brand awareness, customer response time, and 24/7 call centers and Internet presence.
Strong Solvency: Chemed exited the second quarter of 2022 with cash and cash equivalents of $9.6 million. Long-term debt at the end of the second quarter was $111.8 million, much higher than the current-cash level. While exiting the quarter, the company reported short-term payable debt of $5 million. This is good news regarding Chemed’s solvency position, as the company holds sufficient cash for short-term debt repayment during the economic downturn.
Downsides
VITAS Results Discouraging: Chemed’s VITAS revenues registered a 4.5% year-over-year decline in the second quarter. The segment continued to be challenged by pandemic-related issues, including health care labor shortages, disruption in senior housing occupancy and related hospice referrals. VITAS admissions were down 12.5% on a year-over-year basis in the quarter under review.
Pandemic-Related Challenges: The pandemic continues to impact senior housing occupancy, leading to a corresponding reduction in VITAS nursing home admissions. Evidently, nursing home patients accounted for 16.4% of VITAS’ second-quarter patient census compared to 18% of the total census just prior to the pandemic. Further, pandemic-led staffing challenges continue to impact the Roto-Rooter arm.
Tough Competitive Landscape: The market for sewer, drain and pipe cleaning and plumbing repair businesses is highly competitive, with the presence of several local and regional firms. Besides, as the hospice care industry is highly fragmented, VITAS competes with a large number of organizations on the basis of its ability to deliver quality, responsive services.
Estimate Trend
The Zacks Consensus Estimate for Chemed’s 2022 earnings is pegged at $19.46, indicating an increase of 0.7% from the year-ago figure.
The Zacks Consensus Estimate for the company’s 2022 revenues is pegged at $2.14 billion, suggesting a 0.3% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are ShockWave Medical SWAV, AMN Healthcare Services AMN and McKesson MCK. While ShockWave Medical and AMN Healthcare Services sport a Zacks Rank #1 (Strong Buy), McKesson carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for ShockWave Medical’s earnings per share rose from $2.02 to $2.57 for 2022 and from $2.95 to $3.42 for 2023 in the past 60 days. SWAV has gained 53.4% so far this year.
ShockWave Medical delivered an earnings surprise of 180.14%, on average, in the last four quarters.
Estimates for AMN Healthcare Services have improved from earnings of $10.41 to $11.26 for 2022 and $7.94 to $8.30 for 2023 in the past 60 days. AMN stock has declined 13.5% so far this year.
AMN Healthcare Services delivered an earnings surprise of 15.66%, on average, in the last four quarters.
McKesson’s earnings per share estimates increased from $23.27 to $24.42 for fiscal 2023 and $25.41 to $26.04 for fiscal 2024 in the past 60 days. MCK has gained 40.3% so far this year.
McKesson delivered an earnings surprise of 13.00%, on average, in the last four quarters.
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