Intrinsic value of Chemed - CHE

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$185.89

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$185.89

 
Intrinsic value

$145.59

 
Up/down potential

-22%

 
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 3.0

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,577
  1,609
  1,646
  1,688
  1,735
  1,788
  1,846
  1,908
  1,977
  2,050
  2,129
  2,213
  2,302
  2,398
  2,500
  2,608
  2,722
  2,843
  2,971
  3,106
  3,249
  3,399
  3,558
  3,725
  3,902
  4,087
  4,283
  4,489
  4,705
  4,933
  5,173
Variable operating expenses, $m
 
  1,416
  1,448
  1,484
  1,524
  1,569
  1,618
  1,671
  1,729
  1,792
  1,859
  1,883
  1,960
  2,041
  2,127
  2,219
  2,316
  2,419
  2,528
  2,643
  2,765
  2,893
  3,028
  3,170
  3,321
  3,479
  3,645
  3,820
  4,005
  4,199
  4,403
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
  1,416
  1,448
  1,484
  1,524
  1,569
  1,618
  1,671
  1,729
  1,792
  1,859
  1,883
  1,960
  2,041
  2,127
  2,219
  2,316
  2,419
  2,528
  2,643
  2,765
  2,893
  3,028
  3,170
  3,321
  3,479
  3,645
  3,820
  4,005
  4,199
  4,403
Operating income, $m
  179
  192
  198
  204
  211
  219
  228
  237
  247
  258
  270
  330
  343
  357
  372
  388
  405
  423
  442
  463
  484
  506
  530
  555
  581
  609
  638
  669
  701
  735
  770
EBITDA, $m
  214
  249
  255
  261
  269
  277
  286
  296
  306
  318
  330
  343
  357
  372
  387
  404
  422
  440
  460
  481
  503
  527
  551
  577
  604
  633
  664
  695
  729
  764
  801
Interest expense (income), $m
  0
  4
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  28
  29
Earnings before tax, $m
  177
  189
  194
  200
  207
  214
  223
  231
  241
  252
  263
  322
  335
  348
  362
  378
  394
  411
  429
  448
  469
  490
  512
  536
  561
  587
  615
  644
  675
  707
  741
Tax expense, $m
  68
  51
  52
  54
  56
  58
  60
  62
  65
  68
  71
  87
  90
  94
  98
  102
  106
  111
  116
  121
  127
  132
  138
  145
  151
  159
  166
  174
  182
  191
  200
Net income, $m
  109
  138
  142
  146
  151
  156
  162
  169
  176
  184
  192
  235
  244
  254
  265
  276
  288
  300
  313
  327
  342
  358
  374
  391
  410
  429
  449
  470
  493
  516
  541

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
  882
  903
  926
  952
  981
  1,012
  1,047
  1,084
  1,124
  1,168
  1,214
  1,263
  1,315
  1,371
  1,430
  1,493
  1,559
  1,630
  1,704
  1,782
  1,865
  1,952
  2,043
  2,140
  2,242
  2,349
  2,462
  2,581
  2,706
  2,838
Adjusted assets (=assets-cash), $m
  865
  882
  903
  926
  952
  981
  1,012
  1,047
  1,084
  1,124
  1,168
  1,214
  1,263
  1,315
  1,371
  1,430
  1,493
  1,559
  1,630
  1,704
  1,782
  1,865
  1,952
  2,043
  2,140
  2,242
  2,349
  2,462
  2,581
  2,706
  2,838
Revenue / Adjusted assets
  1.823
  1.824
  1.823
  1.823
  1.822
  1.823
  1.824
  1.822
  1.824
  1.824
  1.823
  1.823
  1.823
  1.824
  1.823
  1.824
  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
  1.823
  1.823
Average production assets, $m
  175
  179
  183
  187
  193
  198
  205
  212
  219
  228
  236
  246
  256
  266
  277
  289
  302
  316
  330
  345
  361
  377
  395
  414
  433
  454
  475
  498
  522
  548
  574
Working capital, $m
  -2
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -24
  -25
  -26
Total debt, $m
  109
  107
  115
  124
  135
  146
  159
  173
  188
  204
  221
  240
  259
  280
  303
  327
  352
  378
  406
  436
  468
  501
  536
  572
  611
  652
  695
  740
  788
  838
  891
Total liabilities, $m
  356
  354
  362
  371
  382
  393
  406
  420
  435
  451
  468
  487
  506
  527
  550
  574
  599
  625
  653
  683
  715
  748
  783
  819
  858
  899
  942
  987
  1,035
  1,085
  1,138
Total equity, $m
  524
  529
  541
  555
  570
  587
  606
  627
  649
  674
  699
  727
  757
  788
  821
  857
  894
  934
  976
  1,021
  1,067
  1,117
  1,169
  1,224
  1,282
  1,343
  1,407
  1,475
  1,546
  1,621
  1,700
Total liabilities and equity, $m
  880
  883
  903
  926
  952
  980
  1,012
  1,047
  1,084
  1,125
  1,167
  1,214
  1,263
  1,315
  1,371
  1,431
  1,493
  1,559
  1,629
  1,704
  1,782
  1,865
  1,952
  2,043
  2,140
  2,242
  2,349
  2,462
  2,581
  2,706
  2,838
Debt-to-equity ratio
  0.208
  0.200
  0.210
  0.220
  0.240
  0.250
  0.260
  0.280
  0.290
  0.300
  0.320
  0.330
  0.340
  0.360
  0.370
  0.380
  0.390
  0.410
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.510
  0.520
  0.520
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
  138
  142
  146
  151
  156
  162
  169
  176
  184
  192
  235
  244
  254
  265
  276
  288
  300
  313
  327
  342
  358
  374
  391
  410
  429
  449
  470
  493
  516
  541
Depreciation, amort., depletion, $m
  35
  57
  57
  57
  58
  58
  58
  59
  59
  59
  60
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
Funds from operations, $m
  110
  195
  199
  203
  209
  214
  221
  228
  235
  243
  252
  248
  258
  268
  280
  291
  304
  317
  331
  346
  362
  378
  395
  414
  433
  453
  475
  497
  521
  546
  572
Change in working capital, $m
  -25
  0
  0
  0
  0
  0
  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
Cash from operations, $m
  135
  197
  199
  204
  209
  215
  221
  228
  235
  243
  252
  249
  258
  269
  280
  292
  304
  318
  332
  347
  362
  379
  396
  415
  434
  454
  476
  498
  522
  547
  573
Maintenance CAPEX, $m
  0
  -9
  -10
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
New CAPEX, $m
  -40
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Cash from investing activities, $m
  -40
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -25
  -27
  -29
  -29
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -53
  -57
Free cash flow, $m
  95
  184
  185
  189
  193
  198
  204
  210
  216
  223
  231
  226
  235
  245
  254
  265
  276
  288
  301
  314
  328
  343
  358
  375
  392
  410
  429
  450
  471
  493
  517
Issuance/(repayment) of debt, $m
  17
  7
  8
  9
  10
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
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
  7
  8
  9
  10
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
Total cash flow (excl. dividends), $m
  17
  191
  193
  198
  204
  210
  217
  224
  231
  240
  248
  245
  255
  266
  277
  289
  301
  315
  329
  343
  359
  376
  393
  411
  431
  451
  472
  495
  519
  544
  570
Retained Cash Flow (-), $m
  -11
  -11
  -12
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -31
  -33
  -35
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
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
 
  186
  181
  184
  188
  193
  198
  203
  209
  216
  223
  217
  225
  234
  243
  253
  264
  275
  287
  299
  312
  326
  341
  356
  373
  390
  408
  427
  447
  469
  491
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
 
  179
  166
  161
  155
  149
  143
  137
  131
  124
  117
  103
  96
  89
  82
  74
  67
  60
  53
  46
  40
  34
  28
  23
  19
  15
  12
  9
  7
  5
  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 27.6
Price to Sales 1.9
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 22.3
Price to Free Cash Flow 31.7
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 2% 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 16.038 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 $3.0 billion.


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