Here's Why You Should Retain Chemed (CHE) Stock for Now

Chemed Corporation CHE is well-poised for growth in the coming quarters, backed by the strong performance of the VITAS Healthcare and Roto-Rooter segments. Favorable Hospice industry trends and a strong solvency position are an added advantage.

However, macroeconomic headwinds and competitive disadvantages are discouraging for the company.

In the past year, this Zacks Rank #3 (Hold) stock has increased 10.1% compared with the 12.2% rise of the industry and a 24.3% rise of the S&P 500 composite.

The renowned hospice care provider has a market capitalization of $9.23 billion. In the last reported quarter, the company delivered an average surprise of 5.60%.

Let’s delve deeper.

Upsides

VITAS Prospects Bright:  Chemed has been registering strong performance from the VITAS business, banking on strength in admissions, which continues to drive higher patient census. The segment’s revenues are driven primarily by a rise in the geographically weighted average Medicare reimbursement rate. In the fourth quarter, VITAS’ net revenues were up 13.6% year over year. The Average Daily Census, or ADC, expanded by 1,918, an increase of 11% in Q4 when compared to the prior year quarter.

Roto-Rooter Continues to Expand: Chemed’s management believes Roto-Rooter is well-positioned for growth and anticipates continued expansion of the segment’s market share, banking on its core competitive advantages in terms of brand awareness, customer response time and 24/7 call centers and Internet presence. A notable e-marketing initiative by Roto-Rooter is to expand brand awareness among younger audiences by placing advertisements and content on various social media platforms, including Facebook, Instagram and YouTube.

Hospice Industry Trend Favorable:  Within the Hospice segment, we believe that CHE is well poised to register growth driven by the growing aging population. As people age, the prevalence of chronic and life-limiting illnesses, such as cancer, heart disease and dementia, also increases. This demographic trend drives the hospice market, creating a greater demand for end-of-life care and supportive services.

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Further, growing long-term care services for chronic diseases worldwide, such as COPD and heart failure, are likely to boost companies' growth within the industry. According to a report by Market Data Forecast, the global hospice market is estimated to witness a CAGR of 9.1% between 2023 and 2028.

Downsides

Macroeconomics Headwinds Pressuring Margins:  In recent times, Chemed’s margin performance has been affected by the inflationary trend, increased logistics costs and higher employee-related expenses. Earlier this year, Chemed expected full-year 2023 revenue growth to be dented by 75 basis points as a result of the sequestration relief in the first half of 2022 compared with a full year of sequestration in 2023.

In the fourth quarter of 2023, the company registered a year-over-year increase of 2.5% in the cost of products and services.

Tough Competitive Landscape: The market for sewer, drain and pipe cleaning and plumbing repair businesses is highly competitive. Competition is fragmented in most markets, with local and regional firms providing much of the competition. Besides, Hospice care in the United States is competitive as programs for hospice services are generally uniform. 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 2024 earnings per share (EPS) has remained constant at $23.51 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $2.42 billion. This suggests a 7% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Stryker Corporation SYK, Cencora, Inc. COR and DaVita DVA.

Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.

Cencora, carrying a Zacks Rank #2, reported a first-quarter fiscal 2024 adjusted EPS of $3.28, which beat the Zacks Consensus Estimate by 14.7%. Revenues of $72.3 billion outpaced the Zacks Consensus Estimate by 5.1%.

COR has an earnings yield of 5.75% compared with the industry’s 1.85%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 6.7%.

DaVita, carrying a Zacks Rank #2, has surged 55.7% in the past year. Earnings estimates for DaVita have risen from $8.97 to $9.23 in 2024 and from $9.77 to $10.01 in 2025 in the past 30 days.

DVA’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 35.6%. In the last reported quarter, it posted an earnings surprise of 22.2%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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