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Here’s Why You Should Add Chemed (CHE) to Your Portfolio Now

Zacks

Chemed Corporation CHE has been gaining investors’ confidence on consistent performance and positive results. Over the past three months, the company’s share price has outperformed the broader industry. The stock has gained 24.6% against the broader industry’s 8.4% decline. Also, the company has outperformed the S&P 500’s 6.2% gain.

This leading manufacturer of products and services, primarily for the companion animal veterinary market, has a market cap of $3.93 billion. The company’s five-year historical growth rate is also favorable at 9% as compared with 2.8% of the S&P 500 market. Moreover, the company has delivered an average earnings beat of 5.9% in three of the trailing four quarters.

With solid prospects, this Zacks Rank #2 (Buy) stock is an attractive pick for investors at the moment.

The company’s estimate revision trend for the current year has also been positive. In the past 60 days, one analyst revised estimate upward, with no movement in the opposite direction. The magnitude of estimate revision for earnings per share increased around 2.3% to $8.39.


Per the Zacks Style Score system, Chemed sports a Growth Score of A, which indicates the company’s solid prospects.

Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.

In this regard, Chemed has a favorable Net Margin (Net Income/ Sales) of 4.6%, better than the industry’s 3.1%. The projected annualized earnings growth rate of 15.8% supports the company as a solid growth stock in comparison to the industry’s 4.6%. Moreover, the Debt to Capital ratio of 13.2% compares favorably with the industry’s 44.2%.

Let’s find out whether the recent positive trend is a sustainable one.

Chemed exited third-quarter 2017 on a promising note, with earnings and revenues beating the Zacks Consensus Estimate. The stellar performance was driven by balanced year-over-year revenue growth in both of the company’s subsidiaries.

Within Chemed’s VITAS business, management noted that the recent admission trends have been positive and are expected to continue. During third-quarter 2017, VITAS performed well, financially and operationally, on the back of an increase in the geographically weighted average Medicare reimbursement rate and rise in average daily census.

Moreover, we are encouraged by a rise in VITAS' average length of stay in the recently reported quarter, which in turn is a key indicator of the company’s penetration into the high acuity sector of the market.

Also, the raised outlook for both Roto-Rooter segment’s revenue and overall earnings per share is indicative of brighter prospects in the upcoming quarters. This, in turn, boosts investors’ optimism on the stock.In fact, the raised view was backed by Chemed’s expectation of significant gains from its Roto-Rooter business.

This business has witnessed consistent growth on strong performance within core plumbing and drain cleaning service segments as well as solid growth in water restoration.

Additionally, the company’s strong cash balance enables it to carry out share repurchase programs, providing solid returns to investors. Moreover, the expansion in gross and operating margin buoys optimism.

On the flip side, headwinds like reimbursement-related issues, seasonality in business, a competitive landscape and dependence on government mandate pose challenges for Chemed. Moreover, more than 90% of VITAS’ revenues are payments from the Medicare and Medicaid programs which raises concerns. Also, a tweaked guidance for Medicare Cap billing limitations poses a threat.

Other Key Picks

Some other top-ranked stocks in the broader medical sector are PetMed Express, Inc. PETS, Myriad Genetics, Inc. MYGN and Luminex Corporation LMNX. PetMed, Luminex and Myriad sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 74.1% in a year.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has soared 107.9% over a year.

Luminex has a long-term expected earnings growth rate of 16.3%. The stock has gained 7.9% over the past year.

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New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

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