Chemed’s (NYSE:CHE) Q4: Beats On Revenue

Healthcare services company Chemed Corporation (NYSE:CHE) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 9.2% year on year to $640 million. Its non-GAAP profit of $6.83 per share was 0.7% above analysts’ consensus estimates.

Is now the time to buy Chemed? Find out by accessing our full research report, it’s free.

Company Overview

Founded in 1970, Chemed (NYSE:CHE) provides hospice care and plumbing services through its subsidiaries VITAS Healthcare and Roto-Rooter, respectively, focusing on end-of-life care and residential and commercial plumbing solutions.

Senior Health, Home Health & Hospice

The senior health, home care, and hospice care industries provide essential services to aging populations and patients with chronic or terminal conditions. These companies benefit from stable, recurring revenue driven by relationships with patients and families that can extend many months or even years. However, the labor-intensive nature of the business makes it vulnerable to rising labor costs and staffing shortages, while profitability is constrained by reimbursement rates from Medicare, Medicaid, and private insurers. Looking ahead, the industry is positioned for tailwinds from an aging population, increasing chronic disease prevalence, and a growing preference for personalized in-home care. Advancements in remote monitoring and telehealth are expected to enhance efficiency and care delivery. However, headwinds such as labor shortages, wage inflation, and regulatory uncertainty around reimbursement could pose challenges. Investments in digitization and technology-driven care will be critical for long-term success.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Unfortunately, Chemed’s 4.6% annualized revenue growth over the last five years was mediocre. This was below our standard for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Chemed’s annualized revenue growth of 6.7% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Chemed reported year-on-year revenue growth of 9.2%, and its $640 million of revenue exceeded Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, similar to its two-year rate. This projection is above average for the sector and indicates its newer products and services will help support its recent top-line performance.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Chemed has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 16.1%.

Looking at the trend in its profitability, Chemed’s operating margin decreased by 3.7 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 1 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Chemed generated an operating profit margin of 17.8%, down 1.2 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Chemed’s EPS grew at a remarkable 10.7% compounded annual growth rate over the last five years, higher than its 4.6% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into Chemed’s earnings to better understand the drivers of its performance. A five-year view shows that Chemed has repurchased its stock, shrinking its share count by 9.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q4, Chemed reported EPS at $6.83, up from $6.60 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Chemed’s full-year EPS of $23.14 to grow 7.1%.

Key Takeaways from Chemed’s Q4 Results

This was a quarter without many surprises, with revenue and EPS beating by small amounts. Looking ahead, full-year EPS guide exceeded expectations but again by a fairly small amount. The stock remained flat at $546.72 immediately after reporting.

So do we think Chemed is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.