Chemed Corporation (CHE): A Bull Case Theory

We came across a bullish thesis on Chemed Corporation (CHE) on Substack by 310 Value. In this article, we will summarize the bulls’ thesis on CHE. Chemed Corporation (CHE)'s share was trading at $585.46 as of April 23^rd. CHE’s trailing and forward P/E were 29.43 and 23.26 respectively, according to Yahoo Finance.

Chemed Corporation exemplifies how durable earnings paired with temporary volatility and disciplined share repurchases can create long-term shareholder value. As a holding company with two acyclical subsidiaries—Roto-Rooter, a leader in plumbing services, and Vitas, a major hospice care provider—Chemed has demonstrated consistent performance, with earnings from both businesses compounding in the low teens over the past 21 years. Despite this stability, both segments are prone to temporary disruptions. Vitas experienced this during the COVID-19 pandemic, while Roto-Rooter is currently facing headwinds due to demand pull-forward effects from the pandemic and pressure on consumer spending from inflation. These short-term challenges can depress Chemed’s stock price, creating opportunities for management to repurchase shares at compelling valuations.

This capital allocation strategy is not theoretical—Chemed has a long and proven track record of accumulating cash and deploying it strategically through repurchases when shares are undervalued. In 2024, the company repurchased $359 million of stock, with a remarkable 59.3% of that executed in the fourth quarter alone. Even after this aggressive buyback, Chemed ended the year with $178 million in cash and no debt, maintaining significant financial flexibility. Management evaluates the attractiveness of repurchases partly by comparing the company’s free cash flow yield to the interest earned on cash holdings. With a projected 2025 free cash flow yield of approximately 5.0%—well above the 4.25% pre-tax yield on its cash—Chemed sees a clear incentive to continue buying back shares.

Given its strong balance sheet, shareholder-friendly capital allocation, and resilience of core businesses, Chemed is well-positioned to unlock further value. If the stock remains attractively priced, additional repurchases could significantly boost long-term returns, especially as management continues to buy shares opportunistically without distorting market pricing. This combination of steady earnings, tactical capital deployment, and volatility-driven opportunities presents a compelling investment case.

Chemed Corporation (CHE) 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 fourth quarter which was 27 in the previous quarter. While we acknowledge the risk and potential of CHE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CHE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.