CHE: Mixed Signals, What's Next for Chemed Corporation?

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CHE's technical outlook is mildly bearish. The recent price action shows a bounce from a low of $430.29 on October 31st to $439.25 as of November 4th, yet this is still below the 50-day SMA of $447.26 and significantly below the 200-day SMA, which is present from September 8th onward at $537.34 and trending downward to $517.76 on November 3rd. This suggests a prevailing downtrend. Momentum indicators are mixed. The RSI is currently at 48.97, indicating neutral momentum, and the MACD is negative but trending towards a bullish crossover, with the MACDh showing positive values in recent periods. The stochastic oscillator, with %K at 27.82 and %D at 44.51, indicates oversold conditions potentially leading to a short-term bounce. However, the ADX at 18.51 suggests a weak trend. The recent ROC_20 of 1.22 is also a weak signal, suggesting the stock has not built up much positive momentum. Overall, the indicators suggest a possible consolidation phase with limited upside potential in the next 1-3 months, with the risk of further declines if it fails to break above the 50-day SMA.

Chemed Corporation's MD&A presents a somewhat mixed financial picture. For the three months ended September 30, 2025, 'service revenues and sales' increased by 3.1% to $624.9 million, driven by a 4.2% increase at VITAS and a 1.1% increase at Roto-Rooter. However, the 'consolidated gross margin' decreased from 34.6% to 31.5%, with VITAS' gross margin declining from 24.6% to 21.3% and Roto-Rooter's from 52.9% to 50.7%. This decline is attributed to an increase in Medicare Cap liability and variable expenses. For the nine months ended September 30, 2025, 'service revenues and sales' increased by 5.5% to $1,890.641 million, with VITAS up 8.2% and Roto-Rooter up 1.2%. 'Net income' decreased from $75.776 million to $64.237 million for the three-month period, and from $211.680 million to $188.487 million for the nine-month period. The company noted that 'economic pressures including the challenges of high inflation and the effects of increased tariffs may negatively affect our net sales and profitability in the future,' indicating potential headwinds. While 'net cash provided by operating activities increased $2.2 million' for the nine-month period, the decline in gross margin and net income, coupled with macroeconomic concerns, suggest a mildly bearish outlook.

Chemed Corporation's Q2 2025 earnings call reveals a mildly bearish sentiment due to underperformance in both VITAS and Roto-Rooter. Kevin McNamara stated that the performance of both operating units 'did not meet our expectations'. VITAS faces a $19 million Medicare cap billing limitation in Florida, leading to adjustments in patient mix and potential disruption in operating metrics. While hospital admissions increased 9.1%, home-based and nursing home admissions declined. Mike Witzeman revised the full year adjusted EBITDA margin prior to Medicare Cap to be 18.2% to 18.7%. Roto-Rooter's revenue increased only 0.6%, falling short of internal expectations. Branch revenue grew less than 1%. The company attributes this to a 'chilling effect' from the Liberation Day tariff announcement. Roto-Rooter's adjusted EBITDA margin declined 517 basis points due to labor inefficiencies and higher casualty costs. Full year revenue increase for Roto-Rooter is now forecasted at 1.25% to 1.75%, and the adjusted EBITDA margin is expected to be 23.5% to 24.5%. Consequently, Chemed's full year 2025 earnings per diluted share guidance was revised downward to $22 to $22.30 from a previous range of $24.95 to $25.45.

CHE's financial performance presents a mixed picture. Revenue has shown a slight upward trend, from $585.9M in Q4 2023 to $624.9M in Q3 2025, but it has fluctuated. Profitability, as indicated by the gross profit ratio, has been highly volatile, declining from 0.3658 in Q4 2024 to a concerning -0.5902 in Q3 2025. This significant margin contraction is a major red flag. Operating cash flow is positive at $83.4M in the latest quarter (Q3 2025), indicating the company is generating cash from its operations, but this follows periods of variability. Total debt decreased slightly from $155.1M in Q4 2023 to $141.5M in Q3 2025, suggesting some improvement in solvency. However, the negative gross profit margin in the most recent quarter overshadows these positives, raising serious questions about the company's cost management and pricing strategies, and warrants caution in the near term.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting effective cost management. Return on Equity (ROE) has improved, showcasing efficient capital allocation. While the Price-to-Earnings (P/E) ratio is elevated, it is potentially justified by the company's growth prospects. The Debt-to-Equity ratio has decreased, reflecting a healthier balance sheet and reduced financial risk. The current ratio is at a healthy level, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable combination of growth, profitability, and balance sheet strength, supporting a positive outlook for the next 12 months, although the high P/E ratio warrants close monitoring.