Intrinsic value of Chemed Corp. - CHE

Previous Close

$316.80

  Intrinsic Value

$113.85

stock screener

  Rating & Target

str. sell

-64%

Previous close

$316.80

 
Intrinsic value

$113.85

 
Up/down potential

-64%

 
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 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 5.1

 

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, %
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.77
  5.70
  5.63
  5.56
  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
  5.10
  5.09
  5.08
Revenue, $m
  1,904
  2,030
  2,161
  2,298
  2,440
  2,588
  2,742
  2,903
  3,070
  3,245
  3,428
  3,619
  3,818
  4,026
  4,244
  4,472
  4,711
  4,960
  5,222
  5,496
  5,782
  6,083
  6,398
  6,728
  7,074
  7,437
  7,817
  8,216
  8,635
  9,074
Variable operating expenses, $m
  1,771
  1,884
  2,002
  2,125
  2,253
  2,386
  2,524
  2,669
  2,820
  2,977
  3,083
  3,255
  3,434
  3,622
  3,818
  4,023
  4,237
  4,462
  4,697
  4,943
  5,201
  5,472
  5,755
  6,052
  6,363
  6,690
  7,032
  7,391
  7,767
  8,162
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
  1,771
  1,884
  2,002
  2,125
  2,253
  2,386
  2,524
  2,669
  2,820
  2,977
  3,083
  3,255
  3,434
  3,622
  3,818
  4,023
  4,237
  4,462
  4,697
  4,943
  5,201
  5,472
  5,755
  6,052
  6,363
  6,690
  7,032
  7,391
  7,767
  8,162
Operating income, $m
  133
  146
  159
  173
  187
  202
  218
  234
  251
  268
  344
  364
  384
  405
  426
  449
  473
  498
  525
  552
  581
  611
  643
  676
  711
  747
  785
  826
  868
  912
EBITDA, $m
  217
  231
  246
  261
  277
  294
  312
  330
  349
  369
  390
  411
  434
  458
  483
  509
  536
  564
  594
  625
  658
  692
  728
  765
  804
  846
  889
  934
  982
  1,032
Interest expense (income), $m
  0
  5
  6
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  33
  36
  39
  42
  45
  48
  51
  55
  59
  62
  66
  71
  75
  80
  85
Earnings before tax, $m
  129
  140
  152
  164
  176
  190
  203
  218
  233
  248
  323
  340
  357
  376
  395
  416
  437
  459
  483
  507
  533
  560
  588
  617
  648
  681
  715
  750
  788
  827
Tax expense, $m
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  87
  92
  97
  102
  107
  112
  118
  124
  130
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  223
Net income, $m
  94
  102
  111
  120
  129
  138
  148
  159
  170
  181
  235
  248
  261
  275
  289
  304
  319
  335
  352
  370
  389
  409
  429
  451
  473
  497
  522
  548
  575
  604

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
  1,042
  1,111
  1,182
  1,257
  1,335
  1,416
  1,500
  1,588
  1,680
  1,775
  1,875
  1,980
  2,089
  2,203
  2,322
  2,446
  2,577
  2,714
  2,857
  3,006
  3,163
  3,328
  3,500
  3,680
  3,870
  4,068
  4,276
  4,495
  4,724
  4,964
Adjusted assets (=assets-cash), $m
  1,042
  1,111
  1,182
  1,257
  1,335
  1,416
  1,500
  1,588
  1,680
  1,775
  1,875
  1,980
  2,089
  2,203
  2,322
  2,446
  2,577
  2,714
  2,857
  3,006
  3,163
  3,328
  3,500
  3,680
  3,870
  4,068
  4,276
  4,495
  4,724
  4,964
Revenue / Adjusted assets
  1.827
  1.827
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.827
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
  1.828
Average production assets, $m
  459
  489
  521
  554
  588
  624
  661
  700
  740
  782
  826
  872
  920
  970
  1,023
  1,078
  1,135
  1,195
  1,258
  1,324
  1,394
  1,466
  1,542
  1,621
  1,705
  1,792
  1,884
  1,980
  2,081
  2,187
Working capital, $m
  -40
  -43
  -45
  -48
  -51
  -54
  -58
  -61
  -64
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -110
  -115
  -121
  -128
  -134
  -141
  -149
  -156
  -164
  -173
  -181
  -191
Total debt, $m
  115
  143
  171
  200
  231
  263
  296
  331
  367
  404
  444
  485
  528
  573
  620
  669
  720
  774
  830
  889
  951
  1,016
  1,084
  1,155
  1,230
  1,308
  1,390
  1,476
  1,566
  1,661
Total liabilities, $m
  410
  438
  466
  495
  526
  558
  591
  626
  662
  699
  739
  780
  823
  868
  915
  964
  1,015
  1,069
  1,125
  1,184
  1,246
  1,311
  1,379
  1,450
  1,525
  1,603
  1,685
  1,771
  1,861
  1,956
Total equity, $m
  631
  673
  717
  762
  809
  858
  909
  962
  1,018
  1,076
  1,136
  1,200
  1,266
  1,335
  1,407
  1,483
  1,562
  1,644
  1,731
  1,822
  1,917
  2,017
  2,121
  2,230
  2,345
  2,465
  2,591
  2,724
  2,863
  3,008
Total liabilities and equity, $m
  1,041
  1,111
  1,183
  1,257
  1,335
  1,416
  1,500
  1,588
  1,680
  1,775
  1,875
  1,980
  2,089
  2,203
  2,322
  2,447
  2,577
  2,713
  2,856
  3,006
  3,163
  3,328
  3,500
  3,680
  3,870
  4,068
  4,276
  4,495
  4,724
  4,964
Debt-to-equity ratio
  0.180
  0.210
  0.240
  0.260
  0.290
  0.310
  0.330
  0.340
  0.360
  0.380
  0.390
  0.400
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.540
  0.550
  0.550
Adjusted equity ratio
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606
  0.606

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  102
  111
  120
  129
  138
  148
  159
  170
  181
  235
  248
  261
  275
  289
  304
  319
  335
  352
  370
  389
  409
  429
  451
  473
  497
  522
  548
  575
  604
Depreciation, amort., depletion, $m
  83
  85
  87
  88
  90
  92
  94
  96
  99
  101
  45
  48
  51
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  98
  104
  109
  114
  120
Funds from operations, $m
  177
  187
  197
  208
  219
  231
  243
  255
  268
  282
  281
  296
  311
  328
  345
  363
  382
  401
  422
  443
  466
  489
  514
  540
  567
  595
  625
  657
  689
  724
Change in working capital, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from operations, $m
  180
  190
  200
  211
  222
  234
  246
  259
  272
  286
  285
  300
  316
  332
  349
  368
  387
  406
  427
  449
  472
  496
  521
  547
  574
  603
  633
  665
  698
  733
Maintenance CAPEX, $m
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -104
  -109
  -114
New CAPEX, $m
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -83
  -87
  -92
  -96
  -101
  -106
Cash from investing activities, $m
  -53
  -55
  -59
  -62
  -64
  -68
  -71
  -75
  -78
  -83
  -87
  -91
  -96
  -101
  -106
  -111
  -116
  -122
  -129
  -135
  -142
  -149
  -157
  -165
  -172
  -181
  -190
  -200
  -210
  -220
Free cash flow, $m
  127
  134
  141
  149
  157
  166
  175
  184
  193
  203
  198
  208
  220
  231
  244
  256
  270
  284
  298
  314
  330
  347
  364
  382
  402
  422
  443
  465
  489
  513
Issuance/(repayment) of debt, $m
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
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  
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
Total cash flow (excl. dividends), $m
  153
  161
  170
  179
  188
  198
  208
  218
  229
  241
  237
  250
  263
  276
  291
  306
  321
  338
  355
  373
  392
  411
  432
  454
  476
  500
  525
  551
  579
  608
Retained Cash Flow (-), $m
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -132
  -139
  -146
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
  113
  119
  126
  133
  141
  149
  157
  165
  174
  183
  177
  186
  197
  207
  218
  230
  242
  255
  268
  282
  296
  312
  328
  344
  362
  380
  399
  419
  440
  462
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
  109
  109
  110
  110
  109
  108
  106
  103
  100
  96
  84
  80
  75
  70
  64
  58
  53
  47
  41
  36
  31
  26
  21
  18
  14
  11
  9
  6
  5
  3
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 Corp. (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 $1783 million for the last fiscal year's total revenue generated by Chemed Corp.. The default revenue input number comes from 0001 income statement of Chemed Corp.. 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 6.8% 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 Corp., 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 Corp..
    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 93.2%.

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 Corp..

Corporate tax rate of 27% is the nominal tax rate for Chemed Corp.. 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 24.1%.

Life of production assets of 18.2 years is the average useful life of capital assets used in Chemed Corp. 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 -2.1%. 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 - $591.334 million for Chemed Corp. - 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 15.963 million for Chemed Corp. 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 Corp. at the current share price and the inputted number of shares is $5.1 billion.

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