Chemed Corporation (CHE): A Bull Case Theory

We came across a bullish thesis on Chemed Corporation on Valueinvestorsclub.com by darthtrader. In this article, we will summarize the bulls’ thesis on CHE. Chemed Corporation's share was trading at $427.14 as of January 30th. CHE’s trailing and forward P/E were 22.75 and 16.98 respectively according to Yahoo Finance.

Chemed is an unusual combination of two largely unrelated businesses—VITAS, a hospice and palliative care provider, and Roto-Rooter, a plumbing services business—formed through decades of asset sales, spin-offs, and acquisitions following its origins within W.R. Grace. Today, the company generates roughly $2.4 billion in revenue and $370 million in operating income, produces strong free cash flow, earns ROIC above 20% and ROE in the high 20s, and maintains an essentially net-cash balance sheet.

Despite these qualities, the stock has sold off by roughly one-third in recent months, with the forward P/E compressing from the mid-20s to around 17x, largely due to a reset in expectations. VITAS, which represents the majority of enterprise value, experienced a temporary slowdown driven by Medicare cap adjustments, weaker patient admissions in Q2, and management turnover, leading to a sharp earnings guidance cut. However, the underlying hospice market remains structurally attractive, supported by favorable demographics, rising mortality volumes, and Medicare incentives that increasingly favor hospice care, positioning VITAS to return to mid- to high-single-digit revenue growth and double-digit operating profit growth over the medium term.

Roto-Rooter, by contrast, faces more persistent headwinds from post-COVID normalization, private equity-backed competition, and rising digital marketing costs, which are likely to cap profitability going forward, though the business remains a meaningful cash generator. At current valuation levels, the market appears to be pricing in a permanent impairment at VITAS and little value for future growth, which the author views as overly pessimistic. Even without a breakup or asset sale, Chemed offers a reasonable risk/reward profile driven by recovering hospice fundamentals, strong free cash flow per share, disciplined capital returns, and potential upside from a rerating as VITAS stabilizes.

Previously, we covered a bullish thesis on Chemed Corporation (CHE) by 310 Value in April 2025, which highlighted the company’s durable earnings profile, volatility-driven share repurchases, and disciplined capital allocation. CHE’s stock price has depreciated by approximately 27% since our coverage due to earnings downgrades tied to VITAS execution issues and multiple compression. darthtrader shares a similar view but emphasizes valuation dislocation driven by temporary hospice headwinds and SOTP-style mispricing.

Chemed Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held CHE at the end of the third quarter which was 37 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.