A month has gone by since the last earnings report for Chemed (CHE). Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Chemed due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Chemed Q4 Earnings Miss Estimates, 2021 Outlook Dull

Chemed reported fourth-quarter 2020 adjusted earnings per share of $5.13, up 21.6% year over year. However, the figure lagged the Zacks Consensus Estimate by a penny.

The company’s GAAP earnings per share was $6.96, highlighting a 75.8% surge year over year.

Full-year adjusted earnings per share was $18.08, reflecting a 29.6% increase from the year-ago period. However, the figure was in line with the Zacks Consensus Estimate.

Revenues in Detail

Revenues in the reported quarter improved 2.1% year over year to $533.3 million. The metric lagged the Zacks Consensus Estimate by 0.1%.

Full-year revenues were $2.08 billion, reflecting a 7.3% increase from a year ago. However, the metric was in line with the Zacks Consensus Estimate.

Segmental Details

Chemed operates through two wholly-owned subsidiaries, VITAS (a major provider of end-of-life care) and Roto-Rooter (a leading commercial and residential plumbing plus drain cleaning service provider).

In the fourth quarter, net revenues at VITAS totaled $332 million, down 2.3% year over year. This revenue decline is comprised primarily of a 2.8% decline in days-of-care, a geographically weighted average Medicare reimbursement rate increase (including the suspension of sequestration on May 1, 2020) of approximately 2.4%, and acuity mix shift that reduced the blended average Medicare rate increase approximately 255 bps. Further, the combination of lower Medicare Cap and a decrease in Medicaid net room and board pass-through drove revenue growth an additional 64 bps in the reported quarter.

Roto-Rooter reported sales of $201 million in the fourth quarter, up 10.2% year over year. On a unit-for-unit basis (excluding the Oakland and HSW acquisitions completed in July 2019 and September 2019, respectively), fourth-quarter Roto-Rooter revenues were $183 million, showing an increase of 12.8% year over year.

Total commercial revenues (excluding acquisitions) declined 9.8% on an 11.6% fall in drain cleaning revenues, an 8.9% decline in commercial plumbing and excavation revenues, and a 1% drop in commercial water restoration revenues.

Total residential revenues (excluding acquisitions) registered growth of 20.8% on a 17.1% rise in residential drain cleaning revenues, a 25.5% improvement in plumbing and excavation as well as a 16.8% increase in residential water restoration.

Margin in Detail

Gross profit rose 13.3% year over year to $198.2 million in the fourth quarter of 2020. Gross margin expanded 367 bps year over year to 37.2%, while cost of products and services declined 3.5% in the fourth quarter of 2020.

Adjusted operating profit increased 21.6% from the year-ago period to $111.4 million. Adjusted operating margin expanded 334 bps to 20.9% despite a 4.2% rise in adjusted operating expenses.

Operational Update

Chemed exited 2020 with cash and cash equivalents of $162.7 million, marking a significant improvement from $6.2 million at the end of 2019. There was no long-term debt at the end of 2020, while long-term debt at 2019-end was $90 million.

In the fourth quarter, Chemed’s management repurchased stocks for $28.5 million. As of Dec 30, 2020, there was approximately $178 million of share repurchase remaining under the existing plan.

Cumulative net cash provided by operating activities at the end of 2020 was $489.3 million compared with $301.2 million at the end of 2019.

Guidance 2021

Chemed has announced its financial guidance for 2021, taking the pandemic-led impact into consideration.

For 2021, VITAS revenues prior to Medicare Cap are estimated to decline approximately 4.0% from the prior year. Roto-Rooter is forecasted to achieve 2021 revenue growth of 5% to 6%. The Zacks Consensus Estimate for total revenues is pegged at $2.13 billion.

Full-year 2021 adjusted earnings per diluted share is estimated in the range of $17.00 to $17.50. The Zacks Consensus Estimate for the metric is pegged at $17.58.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Chemed has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Chemed has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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