On Tuesday, RBC Capital Markets adjusted its outlook on Chemed Corporation (NYSE: NYSE:CHE), a provider of hospice and plumbing services. The firm lowered its price target on the company's shares to $633 from the previous $697 while sustaining an Outperform rating.
Chemed reported solid third-quarter results for 2024, with its VITAS healthcare segment showing strength that largely counterbalanced the ongoing challenges faced by its Roto-Rooter plumbing division. The analyst noted that the hospice care segment's patient census has continued to gain momentum, supported by robust hiring within the company.
Despite the positive performance in the healthcare segment, Roto-Rooter's commercial revenue, although improving with a 5% sequential rise in the third quarter, still presents some uncertainty. This increase in revenue is noteworthy, as it typically remains flat during this period. However, the timing of a recovery in the residential services sector remains unclear.
The firm's decision to maintain the Outperform rating reflects a positive view of the company's potential, despite the revised price target. The adjustment to the price target was made as the valuation was rolled over to the following year.
In summary, RBC Capital Markets has expressed confidence in Chemed's operational performance, particularly in its VITAS segment, while acknowledging the headwinds faced by Roto-Rooter. The new price target of $633 reflects these considerations as the firm looks ahead to the next fiscal year.
In other recent news, Chemed Corporation reported mixed Q3 results, with significant growth in its VITAS Healthcare subsidiary, offset by a dip in its Roto-Rooter operations. Revenue and patient admissions for VITAS Healthcare saw a significant increase, with admissions rising by 6.3% year-over-year to 16,775, and revenue up by 17.3% to $391.4 million. However, Roto-Rooter faced a 6.9% decline in revenue to $214.8 million and an 11.7% drop in call volume.
In light of these developments, Chemed adjusted its full-year earnings per share guidance to $23-$23.15. The company anticipates future performance for VITAS to exceed pre-pandemic growth levels, while implementing a strategy to stabilize Roto-Rooter's performance.
Despite challenges including the impact of Hurricanes Helene and Milton on patient intake, VITAS Healthcare has seen nine consecutive quarters of average daily census growth. On the other hand, Roto-Rooter's adjusted EBITDA fell by 15.8% to $56.4 million, and the segment's margin declined by 275 basis points to 26.3%, with the company noting ongoing struggles in the residential business.
InvestingPro Insights
Recent data from InvestingPro adds depth to RBC Capital Markets' analysis of Chemed Corporation (NYSE: CHE). Despite the lowered price target, there are several positive indicators worth noting. Chemed's revenue growth of 6.83% over the last twelve months aligns with the solid performance mentioned in the article, particularly in the VITAS healthcare segment. The company's strong financial health is further evidenced by its ability to maintain dividend payments for 54 consecutive years, with a recent dividend growth of 25%.
InvestingPro Tips highlight that Chemed has been aggressively buying back shares, which could be seen as a sign of management's confidence in the company's future prospects. Additionally, the stock is currently trading near its 52-week low, potentially presenting a value opportunity for investors who share RBC's optimistic outlook.
It's worth noting that InvestingPro has 11 additional tips available for Chemed, offering investors a more comprehensive analysis of the company's financial position and market performance.
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