Chemed Corporation

▲ Bull Case

• ◆VITAS ADC compounds at 7–9% through FY2028 as the Baby Boomer mortality wave intensifies (US deaths growing 1.5–2%/yr) and hospice utilization rises from 52% toward 65%, driving VITAS revenue from $1.67B (FY2024) to $2.5B+ (FY2028)
• ◆VITAS margin expands to 15.0–15.5% as fixed-cost leverage compounds and CMS rate increases (~3%/yr) maintain a 30+bps spread over moderated nursing labor inflation; consolidated adjusted EPS reaches $33–37 by FY2028
• ◆Multiple re-rates from 16–17x to 22–24x as Baby Boomer thesis becomes consensus and CHE is recognized as a defensive healthcare compounder; share count drops to ~12.2M by FY2028 — combined with EPS growth, total return exceeds 50% over 24 months

▼ Bear Case

• ◆CMS hospice rate updates compress to 1–2% under Medicare sustainability pressure; combined with nursing labor inflation re-accelerating to 5–6%, VITAS operating margin compresses from 12.6% to ~11% — driving FY2027 adjusted EPS to ~$24–26 (vs. base $30.50)
• ◆Roto-Rooter housing-sensitive revenue declines as elevated mortgage rates persist, sewer cleaning/restoration volumes weaken, and digital platform competitors (Thumbtack, Angi) erode consumer share; segment EBIT falls below $160M with margins compressing toward 23%
• ◆Multiple compression continues to 15–17x as healthcare-services sector remains out of favor and CHE conglomerate discount widens; combined with EPS pressure, valuation falls to $320–410 (–23% to –2%)

“The central debate consensus is wrestling with: Has VITAS's ADC inflection priced in? Bull side: Sell-side consensus is broadly positive (4-analyst PT $501.50). Bulls argue the Baby Boomer thesis is in early innings; VITAS market share gains from Amedisys/UHG integration provide additional growth; and consensus FY2026 EPS of $25.79 will prove too low. Bear side: Management's FY2026 guidance ($23.25–24.25 EPS) below consensus implies internal caution about ADC sustainability or margin trajectory. Bears point to: (a) ADC growth deceleration risk as cohort base normalizes, (b) CMS political risk perpetually present in a 70%-Medicare business, (c) conglomerate discount limitation on multiple re-rating. Our variant view: Consensus underestimates the ADC compounding rate AND the buyback acceleration math at the current depressed price. Both effects compound.”

• ◆Q2 2026 VITAS ADC print confirming 6%+ YoY growth to validate demographic thesis and trigger consensus EPS upgrades
• ◆CMS FY2027 final hospice rule (August 2026) with 3%+ rate update for ~$50M direct revenue catalyst
• ◆Roto-Rooter Q2/Q3 2026 sequential stabilization in call volume and revenue to remove sentiment overhang
• ◆Accelerated buyback at depressed price ($400–450/share) compounding EPS faster than modeled
• ◆VITAS geographic expansion announcement (new state launch) to add TAM narrative
• ◆Medicare Advantage hospice carve-in evolution increasing VITAS scale advantage in MA contracting

• ◆CMS hospice reimbursement restructuring (RHC tier or GIP changes) could compress VITAS margins 200–300bps (Low–Medium probability, Severe impact)
• ◆Nursing labor inflation re-acceleration to 5–6%/yr cutting ~50bps per 1% from VITAS margin (Medium probability, High impact)
• ◆New DOJ/OIG investigation would create $100–200M legal exposure + management distraction (Low probability, Medium–High impact)
• ◆Optum/UHG integration of Amedisys could erode VITAS market share in overlapping geographies via captive referrals
• ◆Roto-Rooter housing market drag persistence as elevated mortgage rates suppress non-emergency revenue (partially realized)
• ◆CEO succession (McNamara mid-60s, 21-year tenure) with no public succession plan creates near-term transition risk