Intrinsic value of Chemed - CHE

Previous Close

$316.95

  Intrinsic Value

$151.84

stock screener

  Rating & Target

str. sell

-52%

Previous close

$316.95

 
Intrinsic value

$151.84

 
Up/down potential

-52%

 
Rating

str. sell

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 2017), $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 5.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.11
  5.09
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
Revenue, $m
  1,762
  1,861
  1,965
  2,073
  2,186
  2,305
  2,428
  2,558
  2,694
  2,836
  2,984
  3,140
  3,303
  3,474
  3,654
  3,842
  4,039
  4,245
  4,462
  4,689
  4,928
  5,178
  5,440
  5,716
  6,005
  6,308
  6,626
  6,960
  7,311
  7,679
Variable operating expenses, $m
  1,560
  1,645
  1,733
  1,826
  1,923
  2,024
  2,130
  2,241
  2,356
  2,478
  2,552
  2,685
  2,825
  2,971
  3,124
  3,285
  3,453
  3,630
  3,815
  4,010
  4,214
  4,428
  4,652
  4,887
  5,135
  5,394
  5,666
  5,952
  6,251
  6,566
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
  1,560
  1,645
  1,733
  1,826
  1,923
  2,024
  2,130
  2,241
  2,356
  2,478
  2,552
  2,685
  2,825
  2,971
  3,124
  3,285
  3,453
  3,630
  3,815
  4,010
  4,214
  4,428
  4,652
  4,887
  5,135
  5,394
  5,666
  5,952
  6,251
  6,566
Operating income, $m
  202
  217
  232
  247
  264
  281
  299
  317
  337
  358
  432
  455
  479
  503
  529
  557
  585
  615
  647
  680
  714
  750
  788
  828
  870
  914
  960
  1,009
  1,059
  1,113
EBITDA, $m
  325
  344
  363
  383
  404
  425
  448
  472
  497
  523
  551
  580
  610
  641
  675
  709
  746
  784
  824
  866
  910
  956
  1,004
  1,055
  1,109
  1,165
  1,223
  1,285
  1,350
  1,418
Interest expense (income), $m
  0
  5
  7
  8
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  43
  46
  49
  52
  55
  59
  63
  66
  71
  75
Earnings before tax, $m
  197
  210
  224
  238
  253
  269
  285
  303
  321
  340
  413
  433
  455
  478
  502
  527
  553
  581
  609
  640
  671
  705
  740
  776
  815
  855
  898
  942
  989
  1,038
Tax expense, $m
  53
  57
  60
  64
  68
  73
  77
  82
  87
  92
  111
  117
  123
  129
  135
  142
  149
  157
  165
  173
  181
  190
  200
  210
  220
  231
  242
  254
  267
  280
Net income, $m
  144
  153
  163
  174
  185
  196
  208
  221
  234
  248
  301
  316
  332
  349
  366
  385
  404
  424
  445
  467
  490
  514
  540
  567
  595
  624
  655
  688
  722
  758

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  972
  1,027
  1,084
  1,144
  1,207
  1,272
  1,340
  1,412
  1,487
  1,565
  1,647
  1,733
  1,823
  1,917
  2,016
  2,120
  2,229
  2,343
  2,462
  2,588
  2,719
  2,858
  3,002
  3,154
  3,314
  3,481
  3,657
  3,841
  4,035
  4,238
Adjusted assets (=assets-cash), $m
  972
  1,027
  1,084
  1,144
  1,207
  1,272
  1,340
  1,412
  1,487
  1,565
  1,647
  1,733
  1,823
  1,917
  2,016
  2,120
  2,229
  2,343
  2,462
  2,588
  2,719
  2,858
  3,002
  3,154
  3,314
  3,481
  3,657
  3,841
  4,035
  4,238
Revenue / Adjusted assets
  1.813
  1.812
  1.813
  1.812
  1.811
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.813
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
Average production assets, $m
  700
  739
  780
  823
  868
  915
  964
  1,016
  1,069
  1,126
  1,185
  1,247
  1,311
  1,379
  1,450
  1,525
  1,603
  1,685
  1,771
  1,862
  1,956
  2,056
  2,160
  2,269
  2,384
  2,504
  2,631
  2,763
  2,902
  3,048
Working capital, $m
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
  -90
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -135
  -141
  -149
  -156
  -164
  -172
  -181
  -190
  -200
Total debt, $m
  123
  145
  169
  194
  219
  246
  275
  304
  335
  367
  401
  437
  474
  513
  554
  597
  642
  689
  738
  790
  844
  901
  961
  1,024
  1,090
  1,159
  1,231
  1,308
  1,387
  1,471
Total liabilities, $m
  402
  424
  448
  473
  498
  525
  554
  583
  614
  646
  680
  716
  753
  792
  833
  876
  920
  968
  1,017
  1,069
  1,123
  1,180
  1,240
  1,303
  1,369
  1,438
  1,510
  1,586
  1,666
  1,750
Total equity, $m
  571
  603
  637
  672
  708
  747
  787
  829
  873
  919
  967
  1,017
  1,070
  1,126
  1,184
  1,244
  1,308
  1,375
  1,445
  1,519
  1,596
  1,677
  1,762
  1,852
  1,945
  2,043
  2,147
  2,255
  2,368
  2,488
Total liabilities and equity, $m
  973
  1,027
  1,085
  1,145
  1,206
  1,272
  1,341
  1,412
  1,487
  1,565
  1,647
  1,733
  1,823
  1,918
  2,017
  2,120
  2,228
  2,343
  2,462
  2,588
  2,719
  2,857
  3,002
  3,155
  3,314
  3,481
  3,657
  3,841
  4,034
  4,238
Debt-to-equity ratio
  0.220
  0.240
  0.270
  0.290
  0.310
  0.330
  0.350
  0.370
  0.380
  0.400
  0.420
  0.430
  0.440
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.590
Adjusted equity ratio
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587
  0.587

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  144
  153
  163
  174
  185
  196
  208
  221
  234
  248
  301
  316
  332
  349
  366
  385
  404
  424
  445
  467
  490
  514
  540
  567
  595
  624
  655
  688
  722
  758
Depreciation, amort., depletion, $m
  123
  127
  131
  136
  140
  145
  150
  155
  160
  166
  118
  125
  131
  138
  145
  153
  160
  169
  177
  186
  196
  206
  216
  227
  238
  250
  263
  276
  290
  305
Funds from operations, $m
  267
  280
  294
  309
  325
  341
  358
  376
  394
  414
  420
  441
  463
  487
  511
  537
  564
  592
  622
  653
  686
  720
  756
  794
  833
  875
  918
  964
  1,012
  1,062
Change in working capital, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from operations, $m
  269
  283
  297
  312
  328
  344
  361
  379
  398
  417
  424
  445
  468
  491
  516
  542
  569
  598
  628
  659
  692
  727
  763
  801
  841
  883
  927
  973
  1,021
  1,072
Maintenance CAPEX, $m
  -66
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -102
  -107
  -113
  -118
  -125
  -131
  -138
  -145
  -153
  -160
  -169
  -177
  -186
  -196
  -206
  -216
  -227
  -238
  -250
  -263
  -276
  -290
New CAPEX, $m
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -115
  -120
  -126
  -133
  -139
  -146
Cash from investing activities, $m
  -104
  -109
  -115
  -121
  -127
  -134
  -140
  -147
  -156
  -163
  -172
  -180
  -190
  -199
  -209
  -220
  -231
  -242
  -255
  -267
  -281
  -295
  -310
  -325
  -342
  -358
  -376
  -396
  -415
  -436
Free cash flow, $m
  165
  174
  182
  191
  201
  210
  221
  231
  242
  254
  252
  265
  278
  292
  307
  322
  338
  355
  373
  392
  411
  432
  453
  476
  499
  524
  550
  577
  606
  636
Issuance/(repayment) of debt, $m
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  73
  76
  80
  84
Total cash flow (excl. dividends), $m
  187
  196
  206
  216
  226
  237
  249
  261
  273
  286
  286
  300
  315
  331
  348
  365
  383
  402
  422
  443
  465
  489
  513
  538
  565
  593
  622
  653
  686
  720
Retained Cash Flow (-), $m
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -114
  -119
Prev. year cash balance distribution, $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 flow adjustment, $m
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
Cash available for distribution, $m
  156
  164
  172
  181
  190
  199
  209
  219
  229
  240
  238
  250
  262
  276
  290
  304
  319
  335
  352
  370
  388
  408
  428
  449
  471
  495
  519
  545
  572
  600
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
  150
  150
  150
  149
  147
  144
  141
  137
  132
  126
  113
  107
  100
  93
  85
  77
  70
  62
  54
  47
  40
  34
  28
  23
  18
  14
  11
  8
  6
  5
Current shareholders' claim on cash, %
  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 purchases, operates and divests subsidiaries engaged in various business activities. The Company operates through two segments: the VITAS segment (VITAS) and the Roto-Rooter segment (Roto-Rooter). The Company's VITAS provides hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy and volunteers. VITAS is the provider of hospice services in an industry dominated primarily by small, non-profit, community-based hospices. VITAS provides hospice care to Medicare beneficiaries participating in these managed care programs. A portion of its VITAS business is operated in the state of Florida. The Roto-Rooter segment provides plumbing, drain cleaning, water restoration and other related services to both residential and commercial customers.

FINANCIAL RATIOS  of  Chemed (CHE)

Valuation Ratios
P/E Ratio 47.1
Price to Sales 3.3
Price to Book 9.8
Price to Tangible Book
Price to Cash Flow 38
Price to Free Cash Flow 54
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 $1667 million for the last fiscal year's total revenue generated by Chemed. The default revenue input number comes from 2017 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 5.7% 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 88.7%.

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 5.4% 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 0.9%.

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 39.7%.

Life of production assets of 10 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 -2.6%. 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 - $540 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 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 $5.1 billion.

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COMPANY NEWS

▶ VITAS Healthcare Celebrates 40 Years of Hospice Care   [Jul-31-18 10:05AM  GlobeNewswire]
▶ Chemed: 2Q Earnings Snapshot   [Jul-25-18 06:42PM  Associated Press]
▶ New Strong Buy Stocks for June 18th   [Jun-18-18 11:16AM  Zacks]
▶ 5 Top Efficient Stocks to Keep on Your Radar   [May-25-18 09:57AM  Zacks]
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