Chemed (CHE): Net Margin Drops to 11%—Margin Miss Challenges Bullish Narratives

Chemed (CHE) is expected to grow earnings at 11.34% per year, trailing the broader US market’s 15.9% growth estimate. Revenue is forecast to rise by 5.4% annually, which is also slower than the US market’s projected 10.4% rate. The company’s net profit margin stands at 11%, down from 12.7% last year. While earnings have edged down at an average of 0.4% per year over the last five years, the quality of those earnings is regarded as high. With shares trading below estimates of fair value and analyst price targets, as well as an attractive 21.8x price-to-earnings ratio versus sector peers, investors are likely focused on the potential rewards tied to valuation and forward-looking profitability, despite the slower growth profile and narrower margins.

See our full analysis for Chemed.

The next section stacks up these headline numbers against the most-followed narratives in the Chemed investor community. Some long-held views just might get challenged in light of the latest results.

See what the community is saying about Chemed

Margin Recovery Hinges on Medicare Cap Strategy

• VITAS, Chemed’s hospice arm, currently faces margin pressure stemming from Medicare Cap billing limitations in key Florida markets. These have contributed to a net profit margin of 11%, below last year’s 12.7%.
• Analysts' consensus view maintains that Chemed is countering this challenge by shifting its patient mix and operational processes to avoid further Medicare Cap hits, expecting margin normalization after 2025.
  • Consensus narrative points to ongoing demographic tailwinds, such as an aging population and new Florida CON ramp-ups, as catalysts for restoring higher margins once cap issues are managed.
  • However, shifting toward more short-stay patients to avoid cap limitations has weighed on current revenue growth and EBITDA margins, raising questions about how swiftly margin recovery will materialize.
• For a deep dive into why analysts see a rebound in Chemed’s margins as plausible, read the full consensus narrative. 📊 Read the full Chemed Consensus Narrative.

Roto-Rooter Cash Flow Shields Acquisition Ambitions

• Despite modest overall revenue growth forecasts of 5.4% per year, Chemed’s robust Roto-Rooter cash flow gives the company flexibility to pursue strategic hospice acquisitions, even as its residential service volumes face short-term headwinds.
• Analysts' consensus view highlights that Roto-Rooter’s reliable cash streams, while pressured by weak call volumes and rising competition, remain a critical backstop that underpins Chemed’s ability to consolidate hospice assets and drive future market share gains.
  • Consensus narrative notes that, although residential revenue growth has slowed, sustained cash generation provides operational breathing room and funding for opportunistic expansion.
  • However, ongoing labor and insurance cost increases, along with fiercer competition from private equity-backed rivals, could further compress margins and reduce the advantage provided by Roto-Rooter’s historical cash strength.

Discounted Valuation Versus Peers and Targets

• Chemed’s shares are priced at 21.8x earnings, below analyst targets (578.5) and notably under sector peers with an average 32.5x multiple, but slightly above the US healthcare industry average of 21.2x.
• Analysts' consensus view suggests this valuation gap leaves room for upside, provided Chemed can execute on operational fixes and capitalize on industry trends.
  • The current share price of $431.30 sits well below DCF fair value ($646.20) and the analyst target, indicating substantial potential reward if the margin and revenue improvement forecasts are achieved.
  • However, full realization of these targets may depend on resolving margin pressures linked to Medicare cap management and increased competition, especially at Roto-Rooter.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Chemed on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

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A great starting point for your Chemed research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

Chemed’s recent results highlight margin pressures, slower-than-market earnings growth, and challenges from rising competition and regulatory headwinds. These issues raise questions about future consistency.

If you want companies known for reliable performance through varying conditions, focus on stable growth stocks screener (2087 results) that have delivered steady revenue and earnings growth instead of facing uneven results.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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