Chemed Corporation (CHE): A Bull Case Theory

We came across a bullish thesis on Chemed Corporation on The Buyside Guy’s Substack by The Buyside Guy. In this article, we will summarize the bulls’ thesis on CHE. Chemed Corporation's share was trading at $464.00 as of September 2^nd. CHE’s trailing and forward P/E were 23.88 and 18.48, respectively according to Yahoo Finance.

Chemed Corp. (CHE), based in Ohio and publicly listed since 1971, operates two distinct businesses: VITAS, the largest hospice provider in the U.S., and Roto-Rooter, a well-known plumbing and drain service provider. VITAS contributes 58% of revenue, growing around 9%, delivering end-of-life and palliative care through a broad team of healthcare professionals, volunteers, and social workers. Its services are sticky, with scale advantages and pricing power, serving a U.S. hospice market projected to grow from $29.9 billion to $39.1 billion by 2030. Roto-Rooter, representing 42% of revenue and growing ~1.7%, provides residential and commercial plumbing services, part of a U.S. market estimated at $121.5 billion in mid-2024.

Chemed’s stock recently dropped due to a Medicare cap issue in Florida, where higher state reimbursement rates outpaced the national cap, pushing VITAS closer to the limit and limiting revenue recognition. This was exacerbated by slower admissions and higher competition for short-stay patients. Management has a proven playbook to address this: increasing admissions to lower average revenue per patient, blending programs under a single provider number, and optimizing the patient mix to favor short-term admissions, which help maintain cap compliance. The recent approval of a new Pinellas County program and a shift back to higher hospital referrals are expected to create a $30 million cushion for 2026, significantly reducing cap risk.

Chemed also benefits from a strong financial position, generating $250–$367 million in free cash flow annually, no debt beyond leases, and $249 million in cash, enabling opportunistic share repurchases. With the 2025 cap issue largely a one-off, the stock is trading near multi-year troughs on P/E and EV/EBITDA metrics. As market focus shifts to 2026 earnings, a re-rating back to average multiples could drive a 26% upside, while downside is limited to roughly 12%, offering a compelling risk/reward profile. CHE represents a classic reset story with operational levers and financial flexibility to unlock value over the coming quarters.

Previously we covered a bullish thesis on Chemed Corporation (CHE) by 310 Value in April 2025, which highlighted durable earnings, temporary volatility in VITAS and Roto-Rooter, and disciplined share repurchases driving long-term value. The stock has depreciated roughly 20% since due to short-term headwinds. The thesis still stands as CHE’s operational resilience and cash strength remain. The Buyside Guy shares a similar view but emphasizes the Medicare cap issue and management’s mitigation strategies.

Chemed Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 39 hedge fund portfolios held CHE at the end of the first quarter which was 39 in the previous quarter. While we acknowledge the potential of CHE as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.