Chemed Stock Hurt by Roto-Rooter Softness, Macro Issues Dent Growth

Core Viewpoint - Chemed (CHE) is facing challenges due to macroeconomic impacts, seasonality, and competition, particularly affecting its Roto-Rooter business, leading to a Zacks Rank 4 (Sell) [1] Group 1: Challenges Facing Chemed - The Roto-Rooter business is struggling with headwinds in consumer sentiment and spending, prompting management to seek a new marketing agency for its paid search program [2] - The transition to a new SEM provider has contributed to a decline in residential revenues during the third quarter, although management remains optimistic about future improvements [3] - Global economic conditions, including labor shortages, supply chain issues, and inflation, are increasing operational costs, with service costs rising 9.3% year over year and SG&A expenses up 2.4% [4] Group 2: Competitive Landscape - Chemed's Roto-Rooter operates in a fragmented and competitive market for plumbing and drain services, facing competition from local and regional firms [5] - The hospice care segment, particularly VITAS, also faces competition from numerous organizations, necessitating a focus on quality and responsive services to maintain market position [5] Group 3: Positive Developments - The VITAS segment is showing strong growth, with a 17.3% year-over-year increase in the third quarter, bolstered by the $85 million acquisition of Covenant Health [8] - The acquisition has led to a 6.3% increase in admissions and a 15.5% rise in Average Daily Census (ADC), indicating a return to normalized operating conditions [8] - The aging population is expected to drive growth in the hospice market, increasing demand for end-of-life care and supportive services [9] - The global hospice market is projected to grow at a CAGR of 9.1% from 2023 to 2028, indicating favorable long-term trends for the industry [10]