On Aug 11, we issued an updated research report on Chemed Corporation CHE. The company currently operates two wholly-owned subsidiaries — VITAS Healthcare and Roto-Rooter.
Over the past six months, shares of Chemed have consistently outperformed its industry. The stock has gained 3.4% against the industry’s 4.8% decline. The company exited the second quarter with better-than-expected earnings. The company once again registered solid revenue growth across key subsidiaries. Amid the pandemic scenario, fortunately for the company, VITAS and Roto-Rooter have been classified as essential services, allowing Chemed to run its operations.
Over the past few quarters, VITAS has been registering continued uptick in total admissions. Expansion of average daily census is also encouraging. In the second quarter, the top-line improvement was driven by a 2.8% increase in days of care, a geographically weighted average Medicare reimbursement rate increase, including the suspension of sequestration on May 1 of approximately 5.4% and acuity mix shift. This reduced the blended average Medicare rate by approximately 310 basis points.
Chemed Corporation Price and Consensus
Chemed Corporation price-consensus-chart | Chemed Corporation Quote
In the second quarter, Roto-Rooter rose 8.6% year over year. Although, on a unit-for-unit basis (excluding the Oakland and Hoffman Southwest acquisitions completed in July 2019 and September 2019 respectively), Roto-Rooter revenues dropped, total residential revenues, excluding acquisitions, increased 10.4%.
On the flip side, Chemed’s Roto-Rooter operations were severely impacted at the start of the second quarter. In late March 2020, the company observed significant disruption in Roto-Rooter commercial business. Total commercial revenues, excluding acquisitions, decreased 29.1% in the quarter. This aggregate commercial revenue decline included drain cleaning revenue decline of 31.2%, commercial plumbing and excavation decline of 28%, and commercial water restoration drop of 20.3%.
Zacks Rank & Key Picks
Chemed currently carries a Zacks Rank #4 (Sell).
A few better-ranked stocks in the broader medical space are Thermo Fisher Scientific Inc. TMO, PerkinElmer, Inc. PKI and OPKO Health, Inc. OPK. While PerkinElmer sports a Zacks Rank #1 (Strong Buy), the other two carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Thermo Fisher’s long-term earnings growth rate is expected to be 15%.
PerkinElmer’s long-term earnings growth rate is projected at 17.4%.
OPKO Health’s long-term earnings growth rate is estimated at 12%.
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