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Chemed Rides on VITAS Recovery, Robust Roto-Rooter Sales


On Sep 7, we issued an updated research report on Cincinnati, OH-based Chemed Corporation CHE. The stock currently carries a Zacks Rank #2 (Buy).

Over the last six months, Chemed has been trading above the broader industry. The stock has gained 7.1% as against the industry’s decline of 5.1%. Improvement in average net Medicare reimbursement rate and an increase in average daily census during the recently-reported second quarter were encouraging.

The raised outlook for both Roto-Rooter segment and earnings per share is indicative of the company’s anticipated improved operating results in the upcoming quarters, which in turn boosts investors’ optimism on the stock.

Notably, Chemed’s VITAS business had been in trouble over the past few quarters due to certain admission coding changes initiated by the Centers for Medicare & Medicaid Services (CMS). However, management noted the recent admission trends to be positive and that should continue in the coming quarters as well.

In terms of Roto-Rooter business, the company continues to display a robust performance on the strength of core plumbing and drain cleaning service segments. It also prompted a solid rise in water restoration. Management increased expectations to achieve Roto-Rooter full-year 2017 revenue growth of 12-13%, much higher than the earlier projected range of 3-4%. Revenue estimates are based on increased job pricing of approximately 2% and continued growth in water restoration services.

However, headwinds like reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandate pose challenges for Chemed. Also, a tweaked guidance for Medicare Cap billing limitations is a matter of concern.

Other Key Picks

A few other top-ranked medical stocks are Edwards Lifesciences Corporation EW, Lantheus Holdings, Inc. LNTH and IDEXX Laboratories IDXX. While Edwards Lifesciences sports a Zacks Rank #1 (Strong Buy), Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. The stock has rallied roughly 25.4% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has surged 25.7% over the last six months.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 5.9% over the last six months.

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