Chemed Stock Forecast: Investors are often taken aback when they dive into Chemed Corporation research. The company operates two subsidiaries which, at first glance, appear to have nothing in common.
The first is VITAS Healthcare Corporation – the largest provider of end-of-life services in the United States. The second is Roto-Rooter – the top plumbing, water cleanup, and drain cleaning service in the country.
It’s easy to see how the contrast between the two businesses could be puzzling. However, a more thorough investigation of Chemed’s strategy quickly illustrates its brilliance. Chemed has selected two industries that are primed for growth.
Chemed Is Betting On BabyBoomer Growth
The US population is aging – fast. The Baby Boomer generation is leaving the workforce, and that’s only the beginning.
In 2018, the number of Americans aged 65 and older was approximately 52 million. A report from the US Census Bureau projects that number will increase to 78 million by 2035.
That figure marks a turning point. For the first time in history, there will be more elderly people than children in the United States.
The impact of that shift is only just beginning to be understood, but one of the biggest concerns is healthcare. By some estimates, the increase in people requiring nursing home care could rise by 50 percent between 2017 to 2030, from 1.2 million to 1.9 million.
Of course, that means the need for hospice services will increase as well, positioning Chemed’s VITAS Healthcare Corporation for growth.
Why Does Chemed Own Roto-Rooter?
It’s hard to see how Roto-Rooter fits into Chemed’s strategy until you consider the critical relationship between access to working plumbing and quality of life.
Operational pipes, faucets, and drains ensure people can clean and sanitize food, homes, and bodies. More importantly, clean drinking water is critical to good health, and operational plumbing ensures human waste doesn’t spread disease.
In fact, historians have linked a number of global epidemics and plagues to lack of plumbing, and some say plumbing had as much of an impact on eradicating certain diseases as the development of vaccines.
In short, plumbing is more than a convenience. It serves the larger purpose of preventing a variety of health problems.
As the population expands, the need for quality plumbing services will expand right alongside it, putting Roto-Rooter in an excellent position to grow. Clearly, Chemed understands which industries will be in high demand over the coming years.
Why Chemed Owns VITAS Healthcare
VITAS Healthcare Corporation is an industry-leading provider of hospice and palliative care services.
In its 40-year history, VITAS has had a dramatic industry-wide influence on delivery of hospice services. The company financially supports and partners with research and education experts to ensure continued advancement of the field.
The company is based in Miami, and it operates programs in 14 states. VITAS has more than 12,000 employees that range from nurses to members of the clergy. A large volunteer staff partners with the professional caregivers to meet clients’ needs.
In 2017, VITAS provided end-of-life services to more than 82,000 patients. This translates to more than 6 million total days of care.
The company offers support in patients’ homes, as well as through the VITAS network of dedicated inpatient units located in various residential facilities like hospitals and nursing homes.
Roto-Rooter Growing Like A Weed
While Roto-Rooter might not get the accolades of its sister company, its contributions to the field of plumbing have transformed the industry.
Once upon a time, clearing blocked sewer lines involved intensive manual labor – particularly if the issue was caused by tree roots. A team of people was needed to dig down to the pipes, then cut and remove the blockage.
In 1933, Samuel Blanc invented an ingenious little machine that was capable of doing the same job faster and more effectively. His wife named the contraption “Roto-Rooter”, and the Blancs founded their drain cleaning company in 1935.
Roto-Rooter was owned by the Blanc family until 1980, at which point Chemed acquired it.
Today, Roto-Rooter is North America’s largest plumbing, drain cleaning, and water cleanup provider. The business has more than 100 company-owned and independent contractor territories, serving 90 percent of the US population.
Roto-Rooter is available to more than 40 percent of the Canadian population, and through independent franchising, it has expanded to China, Indonesia, Japan, Mexico, the Philippines, the United Kingdom, and beyond.
Roto-Rooter is working to bring some of the most important independent contractor and franchise territories back under company control.
It recently announced the purchase of Hoffman Southwest Corporation’s independent Roto-Rooter franchise operations, which covers a large section of the west coast.
The $120 million acquisition puts 32 million people back in the company’s service area, increasing opportunities to boost productivity, increase market share, and improve the Roto-Rooter’s overall profitability
Chemed Stock Forecast: Is It A Buy?
Overall, Chemed has outperformed the industry in recent months, contributing to a consistent upward trend in stock price.
The company announced its second quarter 2019 results at the end of July, and analysts were pleased with the report. The combined business units generated $474 million in revenue, which represents a year over year increase of 7.2 percent. Consolidated net income was $3.36 per diluted share – an increase of 19.6 percent.
Business leaders reported that VITAS continued to grow, increasing admissions by 3.9 percent year over year. Second quarter net revenue totalled $313 million – an increase of 5.4 percent over the same period in 2018.
Roto-Rooter also continued its growth trend, particularly in water restoration service which was up by 14 percent. Total second quarter revenues topped $161 million, which is a year over year increase of 10.9 percent.
Chemed Corporation’s leaders haven’t made public predictions about third quarter or year-end results, but analysts have. The consensus is that Chemed will continue its growth and profitability, returning a sizable portion of earnings to shareholders.
The primary issue with Chemed Corporation is stock price. It’s fairly high considering the cost of shares for peers in the industry. That means a larger investment is required to realize gains, and many new investors don’t think this is worthwhile.
The same prospective gains are available through other investment choices without such a large outlay of cash.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.