Chemed (CHE) Roto-Rooter Growth Continues, Macro Issues Hurt – January 8, 2024

Chemed’s (CHE Free Report) VITAS and Roto-Rooter businesses have been registering robust performance over the past few quarters. However, macroeconomic headwinds and a competitive landscape are a few downsides. The stock carries a Zacks Rank #3 (Hold) currently.

Chemed’s VITAS segment is showing consistent performance, banking on the strong adoption of its advanced hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy and volunteers. A significant portion of the company’s VITAS business is operated in Florida. This business is benefiting from the relocation of Medicare patients to Florida during the winter months. This results in higher admissions and revenues for Florida programs during that period.

Roto-Rooter is currently the nation’s leading provider of plumbing, drain cleaning service and water restoration, providing services to over 90% of the U.S. population. Management believes Roto-Rooter is well-positioned for growth post-pandemic and anticipates continued expansion of the segment’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. 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.

Within the Hospice segment, we believe that Chemed is well poised, driven by a 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.

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

On the flip side, in recent times, Chemed’s margin performance has been affected by the inflationary trend, increased logistics costs and higher employee-related expenses. In the third quarter, the company noted that full-year 2023 revenue growth is expected to be negatively impacted 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 third quarter of 2023, the company registered a year-over-year increase of 35.8% in the cost of products and services by 4.5%.

Meanwhile, 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.

Key Picks

Some better-ranked stocks in the broader medical space are DaVita (DVA Free Report) , Haemonetics (HAE Free Report) and HealthEquity (HQY Free Report) . DaVita sports a Zacks Rank #1 (Strong Buy), while Haemonetics and HealthEquity presently carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for DaVita’s 2023 earnings per share have remained constant at $8.07 in the past 30 days. Shares of the company have risen 36.5% in the past year compared with the industry’s rise of 10%.

DVA’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.6%. In the last reported quarter, it delivered an average earnings surprise of 48.4%.

Haemonetics’stock has increased 8.7% in the past year. Earnings estimates for Haemoneticshave remained constant at $3.89 for 2023 and at $4.15 for 2024 in the past 30 days.

HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 16.1%. In the last reported quarter, it posted an earnings surprise of 5.3%.

Estimates for HealthEquity’s 2023 earnings per share have increased from $2.03 to $2.15 in the past 30 days. Shares of the company have increased 12.1% in the past year against the industry’s 2.1% fall.

HQY’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 16.5%. In the last reported quarter, it delivered an average earnings surprise of 22.5%.

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