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Despite Its Non-Recurring Income In 2020, Chemed Remains Attractive

Mar. 04, 2021 9:40 AM ETChemed Corporation (CHE)5 Comments


  • Chemed provides exposure to two very different divisions: Hospice care and plumbing.
  • The share price recently fell by over 20% as the market was getting a little bit ahead of itself.
  • Chemed is still expensive, but the valuation is relatively reasonable now.
  • Looking for a helping hand in the market? Members of European Small-Cap Ideas get exclusive ideas and guidance to navigate any climate. Get started today »


Chemed (NYSE:CHE) acts as a holding company for two completely different divisions. It owns VITAS Healthcare which is one of the largest hospice care companies in the US while the Roto-Rooter providers plumbing and drain cleaning services to residential and commercial customers.

Source: Company presentation

Both divisions couldn’t be more different from each other but they have one thing in common: They are resilient, even during tough economic times. That’s why the company is trading at high multiples, but those high multiples aren’t necessarily unreasonable.

The FY2020 results were stellar…

Before explaining how a bunch of non-recurring items has impacted the Chemed full-year results, we should first have a look at said FY 2020 results. The company reported a revenue of $1.08B, an increase of approximately 7% compared to FY 2019. The COGS increased by just 4% and this helped to improve the gross margin.

As you can imagine, the G&A expenses increased as there's a correlation between the business expansion and the overhead expenses, but the total amount of costs and expenses increased by about 0.5% compared to 2019. The main reason for this relatively low increase is the $75.1M in "other income" reported. This pushed the operating income much higher to almost $390M.

Source: SEC filings

The pre-tax income of $396M and net income of $319M is substantially higher than the $262M and $220M in FY 2019 and the slightly lower average share count pushed the EPS to $20.02, coming from $13.77/share.

An excellent result, but the $75.1M in "other operating income" was the main reason for the strong performance in 2020, and the footnotes explain the majority of the $75.1M benefit was caused by an $80.2M contribution from the CARES Act benefits.

Source: annual report 2020, footnotes

The cash flows reported by Chemed

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This article was written by

The Investment Doctor profile picture
As I'm a long-term investor, I'll highlight some stockpicks which will have a 5-7 year investment horizon. As I strongly believe a portfolio should consist of a mixture of dividend-paying stocks and growth stocks, my articles will reflect my thoughts on this mixture.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

RedRock Asset Management GmbH profile picture
Hi doc, I am eager to see an update on this. I would like to initiate a position
Great article. Really appreciate your highlighting the non-reoccurring items that resulted in the spike in free cash flow.
Steven Miller profile picture
Looks like you might just have caught bottom with this call. Looking at initiating a position.
CHE is a truly exceptional businesses with outstanding unit economics hence why it trades at higher valuation multiples. Not many businesses generate a return on tangible assets >50%. Accumulate heavily on this pullback. Won't stay low for very long.
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