Chemed Stock Surges After Jefferies Upgrade to 'Buy' on Q3 Earnings Beat

Chemed Corp. (NYSE:CHE) shares surged 8.7% in Wednesday trading after Jefferies upgraded the stock to 'Buy' from 'Hold' and raised its price target by $100 to $620. The investment bank cited the company's strong third-quarter earnings report as evidence that operational volatility is fading, setting the stage for the stock to regain its premium valuation.

Analyst's Rationale

In a note to clients, Jefferies analyst Brian Tanquilut argued that Chemed is poised to return to its historical status as a defensive "compounder" stock favored by institutional investors. He predicts the stock will gradually re-rate toward a 15 times EBITDA multiple as management re-establishes a track record of stable earnings growth.

The upgrade was triggered by Chemed's third-quarter results, where adjusted diluted earnings per share came in at $6.75, beating the consensus estimate of $6.44. Revenue for the period was $690.9 million. According to Jefferies, the report provides definitive proof that the company's core earnings drivers are accelerating.

Strength in Key Segments

Jefferies' bullish thesis centers on strong performance and an improved outlook for Chemed's two main divisions.

VITAS Hospice Accelerates

The VITAS hospice division was highlighted as a key growth engine. Its performance in the third quarter included:

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• Net patient revenue growth of 12.2% to $457.4 million.
• An adjusted EBITDA surge of 31.4% to $92.5 million.
• Margin expansion of 318 basis points to 20.2%.

Crucially, the analyst noted that VITAS has a "healthy cap cushion," with Medicare Cap billing limitations falling to just $828,000 from $6.1 million a year ago. This development removes a significant historical overhang for the hospice sector and improves earnings visibility for investors.

Roto-Rooter Stabilizes

Meanwhile, the Roto-Rooter plumbing and drain cleaning segment has reached an operational "stabilization point" and is no longer a source of earnings volatility, according to the note. While its adjusted EBITDA dipped 2.5% to $48.2 million on higher overhead, segment sales grew 7.5% to $233.5 million, signaling resilient demand.

Jefferies also pointed to future growth potential from franchise re-acquisitions. During the quarter, Chemed invested approximately $62.5 million to acquire territories in California, which are expected to contribute directly to owned-branch margins.

Market Outlook

With Chemed's management guiding full-year results toward the high end of its previous forecast, Jefferies sees the potential for further earnings beats in the fourth quarter and into the next fiscal year. The combination of accelerating growth in hospice care and stability in its maintenance business is seen as the primary catalyst for the stock's potential re-rating.