Chemed CHE continues to be hurt by macroeconomic impacts on business, seasonality factors and the competitive landscape. The challenges within the Roto-Rooter business dented the third quarter result. The stock carries a Zacks Rank #4 (Sell) at present.

Concerning Factors Pulling CHE Stock Down

The Roto-Rooter business has been navigating the ongoing headwinds in consumer sentiment and consumer spending within its sector. Recently, hit by the business’s ongoing challenges, management has decided to look for a new marketing agency to provide a fresh look at how Roto-Rooter's paid search program is operating. That process culminated in Roto-Rooter transitioning to a new SEM in early July.

The ramp-up time required by the new provider contributed to some of the softness in demand residential revenues experienced in the third quarter. However, management is optimistic that the new provider will soon overcome this situation and will provide more positive results going forward.

Further, the ongoing global economic conditions, such as general labor, supply chain and inflationary pressure, along with political and regulatory developments, are escalating expenses, particularly in staffing and labor costs. In recent times, Chemed’s performance has been affected by the inflationary trend, increased logistics costs, and higher employee-related expenses. In the third quarter, the cost of services provided and goods sold rose 9.3% year over year, while selling, general & administration expenses increased 2.4%.

Meanwhile, Chemed’s Roto-Rooter operates in the highly competitive market for sewer, drain, and pipe cleaning and plumbing repair businesses. Competition is fragmented in most markets, with local and regional firms providing much of the competition. Besides, Hospice care in the United States is competitive as programs for hospice services are generally uniform. As the hospice care industry is highly fragmented, VITAS competes with a large number of organizations based on its ability to deliver quality, responsive services. Both these segments could face challenges in their operations if they are unable to innovate and effectively respond to market trends.

Chemed Corporation Price

Chemed Corporation price | Chemed Corporation Quote

Over the past three months, CHE’s shares dipped 1.6% compared to the industry’s 0.1% drop. Although management expects the Roto-Rooter business to overcome the ongoing crisis, the estimated time of revival is still unclear.

Favorable Factors for CHEMED

Chemed’s VITAS segment is consistently registering accelerated improvement, supported by increased growth in licensed healthcare professionals and strong admissions. Corresponding growth in the patient census has returned VITAS to normalized operating conditions.

VITAS’ performance was solid in the third quarter, with 17.3% growth year over year, backed by a full-quarter contribution from the $85 million acquisition of Covenant Health. This acquisition boosted VITAS’ operational metrics, including a 6.3% improvement in admissions and a 15.5% increase in ADC (Average Daily Census). Management is optimistic about VITAS consistently demonstrating the ability to accelerate the hiring and retention of licensed healthcare professionals.

Within the Hospice segment, we believe that Chemed is well poised to register growth driven by the growing aging population. As people age, the prevalence of chronic and life-limiting illnesses, such as cancer, heart disease and dementia, also increases. This demographic trend drives the hospice market, creating a greater demand for end-of-life care and supportive services.

Further, growing long-term care services for chronic diseases worldwide, such as COPD and heart failure, are likely to boost companies' growth within the industry. According to a report by Market Data Forecast, the global hospice market is estimated to witness a CAGR of 9.1% between 2023 and 2028.

Key Picks

Some better-ranked stocks in the broader medical space are Haemonetics HAE, Globus Medical GMED and ResMed RMD. While ResMed sports a Zacks Rank #1 (Strong Buy) at present, Haemonetics and Globus Medical carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Haemonetics has an earnings yield of 5.02% compared with the industry’s 1.18%. Its earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 19.39%. Its shares have risen 1.8% compared with the industry’s 23.1% growth in the past year. Estimates for Haemonetics’ 2025 EPS have moved north 0.4% to $4.59 in the past 30 days.

Estimates for Globus Medical’s 2024 EPS have remained constant at $2.84 in the past 30 days. Shares of the company have surged 60.6% in the past year compared with the industry’s growth of 32.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, the average beat being 12.1%. In the last reported quarter, it delivered an earnings surprise of 10.3%.

Estimates for ResMed’s fiscal 2025 EPS have risen 2.7% in the past 30 days. Shares of the company have surged 86.3% in the past year compared with the industry’s 32.1% growth. RMD’s earnings surpassed estimates in each of the trailing four quarters, the average beat being 6.4%. In the last reported quarter, it delivered an earnings surprise of 8.4%.

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