Intrinsic value of Chemed - CHE

Previous Close

$306.42

  Intrinsic Value

$166.79

stock screener

  Rating & Target

sell

-46%

Previous close

$306.42

 
Intrinsic value

$166.79

 
Up/down potential

-46%

 
Rating

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 0001), $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 4.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
Revenue, $m
  1,773
  1,884
  2,000
  2,120
  2,246
  2,377
  2,513
  2,656
  2,805
  2,960
  3,122
  3,292
  3,470
  3,656
  3,850
  4,054
  4,267
  4,490
  4,724
  4,970
  5,226
  5,496
  5,778
  6,074
  6,385
  6,710
  7,052
  7,410
  7,786
  8,181
Variable operating expenses, $m
  1,570
  1,665
  1,763
  1,866
  1,974
  2,086
  2,202
  2,324
  2,451
  2,584
  2,670
  2,815
  2,967
  3,126
  3,292
  3,466
  3,649
  3,840
  4,040
  4,249
  4,469
  4,699
  4,941
  5,194
  5,460
  5,738
  6,030
  6,337
  6,658
  6,995
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
  1,570
  1,665
  1,763
  1,866
  1,974
  2,086
  2,202
  2,324
  2,451
  2,584
  2,670
  2,815
  2,967
  3,126
  3,292
  3,466
  3,649
  3,840
  4,040
  4,249
  4,469
  4,699
  4,941
  5,194
  5,460
  5,738
  6,030
  6,337
  6,658
  6,995
Operating income, $m
  204
  220
  237
  254
  272
  291
  311
  332
  353
  376
  452
  477
  503
  530
  558
  587
  618
  651
  685
  720
  757
  796
  837
  880
  925
  972
  1,022
  1,074
  1,128
  1,185
EBITDA, $m
  280
  297
  315
  334
  354
  375
  396
  419
  442
  467
  492
  519
  547
  577
  607
  639
  673
  708
  745
  784
  824
  867
  911
  958
  1,007
  1,058
  1,112
  1,169
  1,228
  1,290
Interest expense (income), $m
  0
  5
  7
  8
  10
  11
  13
  14
  16
  18
  19
  21
  23
  25
  28
  30
  32
  35
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  72
  76
  81
Earnings before tax, $m
  198
  213
  228
  245
  261
  279
  297
  316
  336
  356
  431
  454
  477
  502
  528
  555
  583
  613
  644
  677
  711
  747
  785
  824
  865
  909
  954
  1,002
  1,052
  1,105
Tax expense, $m
  54
  58
  62
  66
  71
  75
  80
  85
  91
  96
  116
  122
  129
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  223
  234
  245
  258
  271
  284
  298
Net income, $m
  145
  156
  167
  178
  191
  203
  217
  231
  245
  260
  315
  331
  348
  367
  385
  405
  426
  448
  470
  494
  519
  545
  573
  602
  632
  663
  697
  731
  768
  806

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
  979
  1,040
  1,104
  1,170
  1,239
  1,312
  1,387
  1,466
  1,548
  1,634
  1,723
  1,817
  1,915
  2,018
  2,125
  2,237
  2,355
  2,478
  2,607
  2,743
  2,884
  3,033
  3,189
  3,352
  3,524
  3,703
  3,892
  4,090
  4,297
  4,515
Adjusted assets (=assets-cash), $m
  979
  1,040
  1,104
  1,170
  1,239
  1,312
  1,387
  1,466
  1,548
  1,634
  1,723
  1,817
  1,915
  2,018
  2,125
  2,237
  2,355
  2,478
  2,607
  2,743
  2,884
  3,033
  3,189
  3,352
  3,524
  3,703
  3,892
  4,090
  4,297
  4,515
Revenue / Adjusted assets
  1.811
  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
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
  1.812
Average production assets, $m
  422
  448
  476
  505
  535
  566
  598
  632
  667
  704
  743
  784
  826
  870
  916
  965
  1,016
  1,069
  1,124
  1,183
  1,244
  1,308
  1,375
  1,446
  1,520
  1,597
  1,678
  1,764
  1,853
  1,947
Working capital, $m
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -90
Total debt, $m
  126
  151
  177
  205
  233
  263
  294
  327
  361
  396
  433
  472
  512
  555
  599
  646
  694
  745
  798
  854
  913
  974
  1,039
  1,106
  1,177
  1,251
  1,329
  1,411
  1,496
  1,586
Total liabilities, $m
  404
  430
  456
  483
  512
  542
  573
  605
  639
  675
  712
  750
  791
  833
  878
  924
  973
  1,023
  1,077
  1,133
  1,191
  1,253
  1,317
  1,384
  1,455
  1,529
  1,607
  1,689
  1,775
  1,865
Total equity, $m
  574
  610
  648
  687
  728
  770
  814
  860
  909
  959
  1,012
  1,067
  1,124
  1,184
  1,247
  1,313
  1,382
  1,455
  1,530
  1,610
  1,693
  1,780
  1,872
  1,968
  2,068
  2,174
  2,285
  2,401
  2,522
  2,650
Total liabilities and equity, $m
  978
  1,040
  1,104
  1,170
  1,240
  1,312
  1,387
  1,465
  1,548
  1,634
  1,724
  1,817
  1,915
  2,017
  2,125
  2,237
  2,355
  2,478
  2,607
  2,743
  2,884
  3,033
  3,189
  3,352
  3,523
  3,703
  3,892
  4,090
  4,297
  4,515
Debt-to-equity ratio
  0.220
  0.250
  0.270
  0.300
  0.320
  0.340
  0.360
  0.380
  0.400
  0.410
  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
  0.580
  0.580
  0.590
  0.590
  0.600
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
  145
  156
  167
  178
  191
  203
  217
  231
  245
  260
  315
  331
  348
  367
  385
  405
  426
  448
  470
  494
  519
  545
  573
  602
  632
  663
  697
  731
  768
  806
Depreciation, amort., depletion, $m
  76
  77
  79
  80
  82
  84
  85
  87
  89
  91
  40
  42
  44
  47
  49
  52
  55
  57
  60
  64
  67
  70
  74
  78
  82
  86
  90
  95
  100
  105
Funds from operations, $m
  221
  233
  246
  259
  273
  287
  302
  318
  334
  351
  355
  373
  393
  413
  435
  457
  481
  505
  531
  558
  586
  616
  647
  679
  713
  749
  787
  826
  868
  911
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Cash from operations, $m
  222
  234
  247
  260
  274
  288
  303
  319
  336
  353
  356
  375
  395
  415
  437
  459
  483
  508
  533
  560
  589
  619
  650
  683
  717
  753
  791
  830
  872
  915
Maintenance CAPEX, $m
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -60
  -64
  -67
  -70
  -74
  -78
  -82
  -86
  -90
  -95
  -100
New CAPEX, $m
  -25
  -26
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -74
  -78
  -81
  -85
  -89
  -94
Cash from investing activities, $m
  -46
  -49
  -52
  -55
  -57
  -60
  -62
  -66
  -69
  -73
  -77
  -80
  -84
  -88
  -93
  -97
  -103
  -108
  -113
  -118
  -125
  -131
  -137
  -144
  -152
  -160
  -167
  -175
  -184
  -194
Free cash flow, $m
  175
  185
  195
  206
  217
  229
  241
  253
  266
  280
  280
  295
  310
  327
  344
  362
  380
  400
  420
  442
  464
  488
  512
  538
  565
  594
  623
  655
  688
  722
Issuance/(repayment) of debt, $m
  25
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  67
  71
  74
  78
  82
  86
  90
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  
  25
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  67
  71
  74
  78
  82
  86
  90
Total cash flow (excl. dividends), $m
  200
  210
  222
  233
  246
  258
  272
  286
  300
  315
  317
  334
  351
  369
  388
  408
  429
  451
  474
  498
  523
  549
  577
  606
  636
  668
  701
  736
  773
  812
Retained Cash Flow (-), $m
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -101
  -105
  -111
  -116
  -122
  -128
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
  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
  166
  174
  184
  194
  205
  216
  227
  239
  252
  265
  264
  278
  293
  309
  325
  342
  360
  378
  398
  418
  439
  462
  485
  510
  535
  562
  591
  620
  651
  684
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
  159
  160
  160
  160
  159
  157
  154
  150
  145
  139
  126
  119
  112
  104
  95
  87
  78
  70
  61
  53
  45
  38
  32
  26
  21
  16
  13
  10
  7
  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 45.5
Price to Sales 3.1
Price to Book 9.5
Price to Tangible Book
Price to Cash Flow 36.7
Price to Free Cash Flow 52.2
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 $1666.724 million for the last fiscal year's total revenue generated by Chemed. The default revenue input number comes from 0001 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 6.4% 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%.

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 23.8%.

Life of production assets of 18.6 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 -1.1%. 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 - $540.354 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 16.006 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 $4.9 billion.

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COMPANY NEWS

▶ Hedge Funds Are Betting On Chemed Corporation (CHE)   [Dec-12-18 12:19AM  Insider Monkey]
▶ Mario Gabelli Trims Keurig Dr Pepper, Chemed Positions   [Nov-05-18 04:04PM  GuruFocus.com]
▶ Chemed Corporation Declares Quarterly Dividend of 30 Cents   [Nov-02-18 12:06PM  Business Wire]
▶ Chemed stock skyrockets on earnings report   [11:34AM  American City Business Journals]
▶ Chemed: 3Q Earnings Snapshot   [05:47PM  Associated Press]
▶ Should You Buy Chemed (CHE) Ahead of Earnings?   [Oct-25-18 08:39AM  Zacks]
▶ Roto-Rooter Buys Five Northern California Franchises   [Oct-01-18 12:47PM  PR Newswire]
▶ When Should You Buy Chemed Corporation (NYSE:CHE)?   [Sep-10-18 02:30PM  Simply Wall St.]
▶ 4 Stocks to Bet on the Burgeoning Home Healthcare Industry   [Sep-06-18 01:45PM  InvestorPlace]
▶ 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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