Chemed (CHE) Roto-Rooter Sales Robust Despite COVID-19 Woes

Chemed Corporation’s CHE Roto-Rooter business has been putting up a robust performance over the past few quarters. A good solvency position and no long-term debt buoy optimism. However, a decline in VITAS revenues over the past few quarters raises concern. Chemed carries a Zacks Rank #3 (Hold) at present.

Over the past three months, Chemed has outperformed its industry. The stock has gained 0.4% against the industry’s 5.1% fall.

Chemed ended the fourth quarter of 2021 with better-than-expected earnings. The year-over-year growth in revenues and adjusted earnings per share appears promising. Robust performance by the Roto-Rooter segment drove the top line. The company anticipates Roto-Rooter’s revenue growth in the range of 8.0-9.5% for 2022.

Demand for plumbing, drain cleaning and excavation and water restoration services remained at record levels. Residential services also witnessed incredible growth. Expansion of gross margins buoys optimism.

Within VITAS, the segment’s revenues declined during the fourth quarter, somewhat offset by a geographically weighted average Medicare reimbursement rate increase of nearly 1.1%. The company’s 2022 outlook considers an acceleration in senior housing admissions during the second half of 2022.

Chemed Corporation Price

Chemed Corporation Price

Chemed Corporation price | Chemed Corporation Quote

Expansion of gross margins buoys optimism. The company’s outlook for 2022, reflecting strong growth over 2021, instills investor confidence.

On the flip side, a 4.8% year-over-year decline in VITAS revenues during the fourth quarter of 2021 was discouraging. In the quarter, the VITAS segment continued to be challenged by pandemic-related issues, including health care labor shortages, disruption in senior housing and rising inflation.

VITAS’ total admissions fell 9.5% and 7.6% on a year over year and sequential basis, respectively. The company also witnessed a 14.4% decline in hospital admissions, a 3.9% drop in home-based admissions, a 3.1% fall in nursing homes admissions and a deterioration of 14.1% in assisted living facilities admissions.

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Escalating operating expenses raise apprehension. Further, a competitive landscape and reimbursement headwinds are worrying.

Key Picks

A few better-ranked stocks in the broader medical space are McKesson Corporation MCK, AMN Healthcare Services, Inc. AMN and Bio-Rad Laboratories, Inc. BIO.

McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted EPS of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.

AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.

AMN Healthcare has outperformed its industry over the past year. AMN has gained 23.8% versus the 62% industry decline.

Bio-Rad reported fourth-quarter 2021 adjusted Earnings per Share of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.

Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.

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