Intrinsic Value Chemed Corporation (CHE)

• Previous Close: $446.40
• Intrinsic Value: $32.62
• Upside potential: -93%

Stock Valuation Context

Business Model And Market Position

Chemed Corporation operates through two primary segments: VITAS Healthcare, a leading provider of hospice care services, and Roto-Rooter, a well-established plumbing and drain cleaning services company. The company’s revenue model is driven by recurring service contracts in hospice care and emergency plumbing services, both of which benefit from stable demand. VITAS Healthcare holds a strong position in the hospice industry, leveraging Medicare reimbursements, while Roto-Rooter dominates its niche with a nationwide network and strong brand recognition. Chemed’s dual-segment approach diversifies its exposure to healthcare and home services, mitigating sector-specific risks. The hospice segment capitalizes on an aging population, while Roto-Rooter benefits from residential and commercial maintenance needs. This balanced portfolio positions Chemed as a resilient player in essential services with high barriers to entry and recurring revenue streams.

Revenue Profitability And Efficiency

Chemed reported revenue of $2.43 billion for FY 2024, with net income of $302 million, reflecting a robust net margin of approximately 12.4%. Diluted EPS stood at $19.89, demonstrating strong profitability. Operating cash flow was $417.5 million, supported by efficient working capital management. Capital expenditures of $49.5 million indicate disciplined reinvestment, aligning with the company’s asset-light service model.

Earnings Power And Capital Efficiency

The company’s earnings power is underscored by its high return on invested capital, driven by low capital intensity in both segments. VITAS benefits from predictable Medicare reimbursements, while Roto-Rooter’s franchise model enhances scalability. Operating cash flow conversion remains efficient, with minimal cyclicality, supporting consistent shareholder returns and reinvestment in growth initiatives.

Balance Sheet And Financial Health

Chemed maintains a solid balance sheet, with $178.4 million in cash and equivalents and total debt of $140.8 million, reflecting a conservative leverage profile. The low debt-to-equity ratio and strong liquidity position provide flexibility for strategic acquisitions or share repurchases. The company’s financial health is further reinforced by its stable cash flow generation.

Growth Trends And Dividend Policy

Organic growth in hospice care is supported by demographic trends, while Roto-Rooter continues to expand its service footprint. Chemed’s dividend policy is sustainable, with a payout ratio below 10%, leaving ample room for reinvestment. The company has a history of returning capital to shareholders through dividends and buybacks, balancing growth and income.

Valuation And Market Expectations

Chemed trades at a premium valuation, reflecting its defensive business model and consistent earnings growth. Market expectations are anchored in the company’s ability to sustain mid-single-digit revenue growth and high margins, supported by its leading market positions and operational efficiency.

Strategic Advantages And Outlook

Chemed’s strategic advantages include its entrenched market positions, diversified revenue streams, and scalable operations. The outlook remains positive, with hospice care demand expected to grow steadily and Roto-Rooter benefiting from recurring service needs. The company is well-positioned to navigate macroeconomic uncertainties while delivering stable returns.

Sources

10-K filing, company investor relations