Chemed (CHE)

Healthcare services company Chemed Corporation (NYSE:CHE) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 3.1% year on year to $624.9 million. Its non-GAAP profit of $5.27 per share was 1.8% below analysts’ consensus estimates.

Company Overview

With a unique business model combining end-of-life care and household services, Chemed (NYSE:CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.

The senior health, home care, and hospice care industries provide essential services to aging populations and patients with chronic or terminal conditions. These companies benefit from stable, recurring revenue driven by relationships with patients and families that can extend many months or even years. However, the labor-intensive nature of the business makes it vulnerable to rising labor costs and staffing shortages, while profitability is constrained by reimbursement rates from Medicare, Medicaid, and private insurers. Looking ahead, the industry is positioned for tailwinds from an aging population, increasing chronic disease prevalence, and a growing preference for personalized in-home care. Advancements in remote monitoring and telehealth are expected to enhance efficiency and care delivery. However, headwinds such as labor shortages, wage inflation, and regulatory uncertainty around reimbursement could pose challenges. Investments in digitization and technology-driven care will be critical for long-term success.

In the hospice care segment, Chemed's VITAS competes with Amedisys (NASDAQ:AMED), LHC Group (owned by UnitedHealth Group, NYSE:UNH), and Encompass Health (NYSE:EHC). Roto-Rooter's competitors include ServiceMaster (NYSE:SERV), Mr. Rooter (owned by Neighborly, private), and numerous regional and local plumbing service providers.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $2.53 billion in revenue over the past 12 months, Chemed has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Chemed’s sales grew at a mediocre 4.1% compounded annual growth rate over the last five years. This was below our standard for the healthcare sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Chemed’s annualized revenue growth of 6.6% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its number of billable days, which reached 2.05 million in the latest quarter. Over the last two years, Chemed’s billable days averaged 2.5% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Chemed grew its revenue by 3.1% year on year, and its $624.9 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months, similar to its two-year rate. Still, this projection is above average for the sector and implies the market sees some success for its newer products and services.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Chemed has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 15.6%.

Looking at the trend in its profitability, Chemed’s operating margin decreased by 4.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Chemed generated an operating margin profit margin of 12%, down 3.2 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Chemed’s decent 5.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q3, Chemed reported adjusted EPS of $5.27, down from $5.64 in the same quarter last year. This print slightly missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Chemed’s full-year EPS of $22 to grow 12%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Chemed has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.2% over the last five years, better than the broader healthcare sector.

Chemed’s free cash flow clocked in at $36.94 million in Q3, equivalent to a 5.9% margin. The company’s cash profitability regressed as it was 6.8 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Chemed hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 29%, splendid for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Chemed’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Chemed reported $129.8 million of cash and $141.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $471.6 million of EBITDA over the last 12 months, we view Chemed’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $4.47 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. EBITDA and EPS both missed. Overall, this quarter could have been better. The stock traded down 4.8% to $418.19 immediately following the results.

Updated: December 4, 2025 at 10:21 PM EST

Before investing in or passing on Chemed, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Chemed’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was mediocre over the last five years. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its declining adjusted operating margin shows the business has become less efficient.

Chemed’s P/E ratio based on the next 12 months is 17.2x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $574.25 on the company (compared to the current share price of $424.30).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.