Why Is Chemed (CHE) Up 13.6% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Chemed Corporation (NYSE:CHE) . Shares have added about 13.6% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CHE 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 first-quarter 2018 adjusted earnings per share (EPS) were $2.72, compared with the year-ago $1.82. The figure also surpassed the Zacks Consensus Estimate of $2.37.

Quarter in Details

Revenues in the quarter increased 8.2% year over year to $439.2 million, beating the Zacks Consensus Estimate of $420 million.

Chemed 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 first quarter, net revenues at VITAS Healthcare totaled $292 million, reflecting an increase of 5.5% year over year. Revenues were driven by a 0.7% increase in the average net Medicare reimbursement rate and a 6.1% rise in average daily census. Further, a decrease in Medicare Cap drove revenues by 0.6%. However, this was partially offset by acuity mix shift which impacted revenues by 1.8%.

Roto-Rooter reported sales of $147.2 million in the first quarter, up 20.2% year over year. According to the company, revenues from water restoration increased 53.3% year over year to $27.7 million.

Gross margin expanded 90 basis points (bps) year over year to 30.7%. Adjusted operating margin also expanded 240 bps to 15% in the quarter owing to a 0.7% contraction in selling, general and administrative expenses to $69 million.

Chemed exited the first quarter of 2018 with total cash and cash equivalents of $13.7 million, up from $11.1 million at the end of 2017. The company had total debt of $132.5 million at the end of the first quarter, reflecting a sharp increase from $91.2 million at 2017-end. As of Mar 31, 2018, the company had approximately $244 million of undrawn borrowing capacity under its existing five-year credit agreement.

During the first quarter, the company repurchased shares worth $81.1 million. The board has authorized an additional $150 million for stock repurchase under Chemed’s existing plan. As of Mar 31, 2018, the company had $124.4 million of remaining share repurchase authorization under this plan.

2018 Outlook Intact

The company projects VITAS Healthcare revenue growth for 2018 in the range of 2.5% to 3.5%, prior to the Medicare Cap. Also, the admissions and Average Daily Census in 2018 are expected to increase 3% to 4%. Medicare Cap billing limitations are expected at around $5 million in 2018.

The Roto-Rooter business is likely to grow 4% to 5% in the full year. The 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 band of $10.60 to $10.85 as compared with $8.43 reported in 2017. The Zacks Consensus Estimate of $10.72 is within the guided range.

How Have Estimates Been Moving Since Then?

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

Chemed Corporation Price and Consensus

Chemed Corporation Price and Consensus | Chemed Corporation Quote

VGM Scores

At this time, CHE has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. 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 this revision looks promising. It comes with little surprise CHE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.