Chemed (CHE) Up 13.6% Since Earnings Report: Can It Continue?

About a month has gone by since the last earnings report for Chemed Corp. (NYSE:CHE) . Shares have added about 13.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Chemed’s third-quarter 2017 adjusted earnings per share (EPS) were $2.15, as compared to the year-ago figure of $1.73. The figure also surpassed the Zacks Consensus Estimate of $2.00.

Quarter in Details

Revenues in the quarter increased 6.3% year over year to $417.4 million, beating the Zacks Consensus Estimate of $415 million.

Chemed currently operates through two wholly-owned subsidiaries, namely, VITAS Healthcare Corporation – a major provider of end-of-life care – and Roto-Rooter – a leading commercial and residential plumbing and drain cleaning service provider.

In the third quarter, net revenues at VITAS Healthcare totaled $288.9 million, reflecting an increase of 2.2% year over year. Revenues were driven by a 1.3% increase in the average net Medicare reimbursement rate and a 2.8% rise in average daily census. However, this was offset by acuity mix shift which impacted revenues by 2.2%.

Roto-Rooter reported sales of $128.5 million in the third quarter were up 17.1% year over year. According to the company, revenues from water restoration increased 77.2% year over year to $21.1 million.

Gross margin expanded 274 basis points (bps) year over year to 30.9%. Adjusted operating margin expanded 183 bps to 14.9% in the quarter on a 12.7% rise in selling, general and administrative expenses to $66.9 million.

Chemed exited the third quarter of 2017 with total cash and cash equivalents of $18.9 million, up from $13.8 million at the end of second-quarter 2017. The company had total debt of $82.5 million at the end of the third quarter, compared with $125 million at the end of the preceding quarter. As of Sep 30, 2017, the company had approximately $309 million in undrawn borrowing capacity under its existing five-year credit agreement.

During the third quarter, the company repurchased shares worth $9.6 million. In March 2017, the board had authorized an additional 100 million for Chemed’s existing share repurchase plan. As of Sep 30, 2017, the company had $55.5 million of remaining share repurchase authorization under the plan.

2017 Outlook

The company continues to project VITAS Healthcare revenue growth for 2017 in the range of 2% to 3%, prior to the Medicare Cap. Also, the admissions and Average Daily Census in 2017 is expected to increase 2% to 3% (earlier it was 3% to 5%). Medicare Cap billing limitations are expected at around $1.5 million in 2017, while it was earlier projected at around $2.5 million.

The Roto-Rooter business is estimated to grow 13% to 14% in the full year, as compared with the earlier range of 12% to 13%. The raised guidance was backed by a 2% increase in job pricing and water restoration services growth.
Full-year adjusted EPS is expected to grow in the range of $8.35 to $8.40 ($8.10 to $8.20 previously) as compared with $7.24 reported in 2016.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter

VGM Scores

At this time, the stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.