Chemed Remains A Buy On Long-Term Economics

Core Viewpoint - Chemed Corporation (NYSE:CHE) continues to be a strong investment opportunity, with a reiterated buy rating following its Q2 FY'24 earnings report, projecting a price target of $580-$600 per share in the near term and $700 per share in the long term [4][19]. Financial Performance - In Q2 FY'24, Chemed reported approximately $596 million in revenue, reflecting a year-over-year growth of about 7.6% and earnings of $5.47 per share [6]. - The company's return on invested capital (ROIC) stands at approximately 22%, with book capital valued at around $1.9 billion [5][6]. - VITAS, a key segment, reported 17,344 admissions, an 11% increase year-over-year, contributing $374 million in sales, which is a 17% increase from the previous year [6][7]. Growth Projections - Management has revised its guidance upward, forecasting VITAS growth between 16.3% to 17.3%, with average daily census (ADC) growth projected at 13.3% to 14.4% [6]. - The acquisition of Covenant Health is expected to contribute approximately $30 million in sales for FY24, with an adjusted EBITDA of around $8.5 million [7]. Valuation Insights - The current valuation of Chemed is approximately 6x enterprise value to invested capital (EV/IC), which is considered compressed but leaves room for expansion [9][12]. - The company has the potential to reinvest about 11% of its net operating profit after tax (NOPAT) annually, which could lead to a share price of approximately $603 by FY'26E at a 6.3x EV/IC multiple [12][14]. Management and Strategy - Chemed's management is recognized for its shareholder-friendly practices, treating capital as shareholders' cash and deploying it wisely [8][19]. - The company has demonstrated strong unit economics across its operating businesses, indicating effective capital stewardship [8][19].