Intrinsic value of Chemed - CHE

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$201.82

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$201.82

 
Intrinsic value

$159.25

 
Up/down potential

-21%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CHE stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.20
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  1,577
  1,642
  1,710
  1,783
  1,861
  1,943
  2,030
  2,122
  2,219
  2,321
  2,429
  2,543
  2,663
  2,789
  2,922
  3,062
  3,210
  3,365
  3,528
  3,700
  3,880
  4,070
  4,269
  4,479
  4,699
  4,931
  5,174
  5,430
  5,699
  5,981
  6,277
Variable operating expenses, $m
 
  1,444
  1,503
  1,565
  1,631
  1,701
  1,775
  1,853
  1,935
  2,022
  2,114
  2,164
  2,266
  2,374
  2,487
  2,606
  2,732
  2,864
  3,003
  3,149
  3,302
  3,464
  3,633
  3,812
  3,999
  4,197
  4,404
  4,621
  4,850
  5,090
  5,342
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,398
  1,444
  1,503
  1,565
  1,631
  1,701
  1,775
  1,853
  1,935
  2,022
  2,114
  2,164
  2,266
  2,374
  2,487
  2,606
  2,732
  2,864
  3,003
  3,149
  3,302
  3,464
  3,633
  3,812
  3,999
  4,197
  4,404
  4,621
  4,850
  5,090
  5,342
Operating income, $m
  179
  197
  208
  218
  230
  242
  255
  269
  283
  298
  315
  379
  397
  415
  435
  456
  478
  501
  525
  551
  578
  606
  636
  667
  700
  734
  771
  809
  849
  891
  935
EBITDA, $m
  214
  254
  265
  276
  288
  301
  314
  329
  344
  360
  376
  394
  413
  432
  453
  474
  497
  521
  547
  573
  601
  631
  661
  694
  728
  764
  802
  841
  883
  927
  973
Interest expense (income), $m
  0
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
Earnings before tax, $m
  177
  194
  204
  214
  225
  236
  249
  262
  276
  290
  305
  369
  386
  404
  422
  442
  463
  485
  508
  532
  558
  585
  613
  643
  674
  707
  741
  777
  816
  856
  897
Tax expense, $m
  68
  52
  55
  58
  61
  64
  67
  71
  74
  78
  82
  100
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
  231
  242
Net income, $m
  109
  141
  149
  156
  164
  173
  182
  191
  201
  212
  223
  269
  282
  295
  308
  323
  338
  354
  371
  389
  407
  427
  448
  469
  492
  516
  541
  568
  595
  625
  655

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  880
  901
  938
  978
  1,021
  1,066
  1,113
  1,164
  1,217
  1,273
  1,332
  1,395
  1,461
  1,530
  1,603
  1,680
  1,761
  1,846
  1,935
  2,029
  2,128
  2,232
  2,342
  2,457
  2,578
  2,705
  2,838
  2,979
  3,126
  3,281
  3,443
Adjusted assets (=assets-cash), $m
  865
  901
  938
  978
  1,021
  1,066
  1,113
  1,164
  1,217
  1,273
  1,332
  1,395
  1,461
  1,530
  1,603
  1,680
  1,761
  1,846
  1,935
  2,029
  2,128
  2,232
  2,342
  2,457
  2,578
  2,705
  2,838
  2,979
  3,126
  3,281
  3,443
Revenue / Adjusted assets
  1.823
  1.822
  1.823
  1.823
  1.823
  1.823
  1.824
  1.823
  1.823
  1.823
  1.824
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.824
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
Average production assets, $m
  175
  182
  190
  198
  207
  216
  225
  236
  246
  258
  270
  282
  296
  310
  324
  340
  356
  373
  392
  411
  431
  452
  474
  497
  522
  547
  574
  603
  633
  664
  697
Working capital, $m
  -2
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
Total debt, $m
  109
  114
  129
  145
  162
  180
  200
  220
  241
  264
  287
  312
  339
  366
  396
  427
  459
  493
  529
  567
  606
  648
  692
  738
  787
  838
  891
  947
  1,007
  1,069
  1,134
Total liabilities, $m
  356
  361
  376
  392
  409
  427
  447
  467
  488
  511
  534
  559
  586
  613
  643
  674
  706
  740
  776
  814
  853
  895
  939
  985
  1,034
  1,085
  1,138
  1,194
  1,254
  1,316
  1,381
Total equity, $m
  524
  539
  562
  586
  611
  638
  667
  697
  729
  763
  798
  835
  875
  916
  960
  1,006
  1,055
  1,106
  1,159
  1,216
  1,275
  1,337
  1,403
  1,472
  1,544
  1,620
  1,700
  1,784
  1,872
  1,965
  2,063
Total liabilities and equity, $m
  880
  900
  938
  978
  1,020
  1,065
  1,114
  1,164
  1,217
  1,274
  1,332
  1,394
  1,461
  1,529
  1,603
  1,680
  1,761
  1,846
  1,935
  2,030
  2,128
  2,232
  2,342
  2,457
  2,578
  2,705
  2,838
  2,978
  3,126
  3,281
  3,444
Debt-to-equity ratio
  0.208
  0.210
  0.230
  0.250
  0.270
  0.280
  0.300
  0.320
  0.330
  0.350
  0.360
  0.370
  0.390
  0.400
  0.410
  0.420
  0.440
  0.450
  0.460
  0.470
  0.480
  0.480
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.540
  0.550
Adjusted equity ratio
  0.588
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  109
  141
  149
  156
  164
  173
  182
  191
  201
  212
  223
  269
  282
  295
  308
  323
  338
  354
  371
  389
  407
  427
  448
  469
  492
  516
  541
  568
  595
  625
  655
Depreciation, amort., depletion, $m
  35
  57
  57
  58
  58
  59
  59
  60
  61
  61
  62
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
  36
  38
Funds from operations, $m
  110
  199
  206
  214
  223
  231
  241
  251
  262
  273
  285
  284
  297
  311
  326
  341
  357
  374
  392
  411
  431
  451
  473
  496
  520
  546
  572
  600
  630
  660
  693
Change in working capital, $m
  -25
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  135
  201
  206
  214
  223
  232
  241
  251
  262
  273
  285
  285
  298
  312
  327
  342
  358
  375
  393
  412
  432
  452
  474
  497
  521
  547
  573
  601
  631
  662
  694
Maintenance CAPEX, $m
  0
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
New CAPEX, $m
  -40
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
Cash from investing activities, $m
  -40
  -17
  -18
  -18
  -20
  -20
  -22
  -22
  -24
  -24
  -26
  -28
  -28
  -30
  -32
  -34
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -59
  -63
  -65
  -69
Free cash flow, $m
  95
  184
  189
  196
  204
  212
  220
  229
  239
  249
  259
  258
  270
  282
  295
  309
  323
  339
  355
  372
  389
  408
  428
  448
  470
  493
  517
  542
  568
  596
  626
Issuance/(repayment) of debt, $m
  17
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  54
  56
  59
  62
  65
Issuance/(repurchase) of shares, $m
  -94
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -79
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  54
  56
  59
  62
  65
Total cash flow (excl. dividends), $m
  17
  198
  204
  212
  221
  230
  239
  249
  260
  271
  283
  283
  296
  310
  324
  340
  356
  373
  391
  409
  429
  450
  472
  494
  518
  544
  570
  598
  628
  658
  691
Retained Cash Flow (-), $m
  -11
  -21
  -23
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -42
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -66
  -69
  -72
  -76
  -80
  -84
  -88
  -93
  -97
Prev. year cash balance distribution, $m
 
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  183
  181
  188
  195
  203
  211
  219
  228
  238
  248
  245
  256
  268
  281
  294
  307
  322
  337
  353
  370
  387
  406
  426
  446
  468
  490
  514
  539
  566
  593
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  175
  166
  164
  161
  157
  153
  148
  143
  136
  130
  117
  109
  102
  94
  86
  78
  70
  62
  54
  47
  40
  34
  28
  23
  18
  14
  11
  8
  6
  4
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Chemed Corporation provides hospice and palliative care services in the United States. It operates through two segments, VITAS and Roto-Rooter. The company offers its services to patients through a network of physicians, registered nurses, home health aides, social workers, clergy, and volunteers. It also provides plumbing, drain cleaning, water restoration, and other related services to residential and commercial customers. The company was founded in 1970 and is based in Cincinnati, Ohio.

FINANCIAL RATIOS  of  Chemed (CHE)

Valuation Ratios
P/E Ratio 30
Price to Sales 2.1
Price to Book 6.2
Price to Tangible Book
Price to Cash Flow 24.2
Price to Free Cash Flow 34.4
Growth Rates
Sales Growth Rate 2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.1%
Cap. Spend. - 3 Yr. Gr. Rate 6.6%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 19.1%
Total Debt to Equity 20.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.6%
Ret/ On Assets - 3 Yr. Avg. 12.2%
Return On Total Capital 17.6%
Ret/ On T. Cap. - 3 Yr. Avg. 17.3%
Return On Equity 21%
Return On Equity - 3 Yr. Avg. 21.9%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 29.2%
Gross Margin - 3 Yr. Avg. 29.3%
EBITDA Margin 13.4%
EBITDA Margin - 3 Yr. Avg. 13.5%
Operating Margin 11.4%
Oper. Margin - 3 Yr. Avg. 11.6%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 6.9%
Net Profit Margin - 3 Yr. Avg. 6.9%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 38.9%
Payout Ratio 14.7%

CHE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHE stock intrinsic value calculation we used $1577 million for the last fiscal year's total revenue generated by Chemed. The default revenue input number comes from 2016 income statement of Chemed. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CHE stock valuation model: a) initial revenue growth rate of 4.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CHE is calculated based on our internal credit rating of Chemed, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Chemed.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CHE stock the variable cost ratio is equal to 88.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CHE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Chemed.

Corporate tax rate of 27% is the nominal tax rate for Chemed. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CHE stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CHE are equal to 11.1%.

Life of production assets of 18.5 years is the average useful life of capital assets used in Chemed operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CHE is equal to -0.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $524 million for Chemed - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 16.004 million for Chemed is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Chemed at the current share price and the inputted number of shares is $3.2 billion.


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COMPANY NEWS

▶ Chemed posts 1Q profit   [Apr-26-17 06:24PM  Associated Press]
▶ Chemed Reports First-Quarter 2017 Results   [04:15PM  Business Wire]
▶ 5 Stocks to Buy for the Post-Obamacare Era   [Feb-27-17 05:07PM  Zacks]
▶ Chemed Reports Fourth-Quarter 2016 Results   [04:15PM  Business Wire]
▶ Do Hedge Funds Love Sterling Bancorp (STL)?   [Dec-08-16 05:47PM  at Insider Monkey]
▶ Is Chemed Corporation (CHE) Going to Burn These Hedge Funds?   [Dec-03-16 05:30PM  at Insider Monkey]
▶ Chemed Corporation Declares Quarterly Dividend of 26 Cents   [Nov-04-16 12:32PM  Business Wire]
▶ Chemed Reports Third-Quarter 2016 Results   [04:15PM  Business Wire]
▶ Chemed Reports Second-Quarter 2016 Results   [04:15PM  Business Wire]
▶ Chemed posts 1Q profit   [Apr-28-16 06:53PM  AP]
▶ Chemed Reports First-Quarter 2016 Results   [04:15PM  Business Wire]
▶ Will Cincinnati firms $100M expenditure benefit shareholders?   [Mar-14-16 05:20PM  at bizjournals.com]
Stock chart of CHE Financial statements of CHE Annual reports of CHE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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