Here's Why Chemed (CHE) Should Remain In Your Portfolio Now

Chemed Corporation (NYSE:CHE) has been gaining investors’ confidence, courtesy of its strength in core business segments and a promising return to its shareholders.

In the past year, shares of this Ohio-based company have rallied 15% versus the industry’s 15.9% decline.

Riding on a few solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to for the moment.

What’s Favoring the Stock?

VITAS’ Bright Prospects: Chemed has been registering a strong performance from VITAS business over the last few quarters. During the first quarter of 2019, net revenues at VITAS reflected significant year-over-year growth, driven by an uptick in geographically weighted average Medicare reimbursement rate.

Roto-Rooter’s Steady Expansion: This business is putting up a robust show in the core plumbing and drain cleaning service segments besides solid growth in water restoration. The company’s acquisition of five formerly independent Roto-Rooter franchises, covering several areas of Northern California, buoys investors’ optimism on the stock.

Strong Cash Balance: Chemed exited the first quarter with cash and cash equivalents of $8.8 million, reflecting a significant surge from $4.8 million at the end of 2018. At first-quarter end, net cash provided by operating activities was $73.6 million compared with $65.2 million a year ago. This indicates an impressive return of funds to shareholders.

Downsides:

However, there are a few factors that have been impeding the stock’s growth prospects.

Tough Competitive Landscape: Hospice care industry in the United States sees an acute contest 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 and responsive services.

Reliance on Government Mandates: Over 90% of VITAS’ revenues comprises payments from the Medicare and Medicaid programs. The Medicare and Medicaid programs are escalating pressure to control health care costs and cut/limit hikes in reimbursement rates for health care services.

Which Way Are Estimates Moving?

For the to-be-reported quarter, the Zacks Consensus Estimate for earnings is pegged at $3.09, indicating 9.9% growth from the year-ago quarter’s reported figure. The consensus mark for revenues stands at $469.8 million, implying a 6.3% improvement from revenues reported in the year-earlier quarter.

For 2019, the Zacks Consensus Estimate for earnings is pinned at $12.77, suggesting 7% rise from the prior-year period’s reported number. The same for revenues is pegged at $1.90 billion, indicating a climb of 6.7% from revenues reported in the comparable quarter last year.

Key Picks

Some better-ranked stocks in the broader medical space are Teleflex Inc. (NYSE:TFX) , Penumbra (NYSE:PEN) and Bruker Corporation (NASDAQ:BRKR) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Teleflex’s long-term earnings growth rate is expected to be 13.7%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

Bruker’s long-term earnings growth rate is estimated at 11.7%.

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