Jefferies initiates Chemed stock with Hold rating, $500 price target

Chemed (NYSE:CHE) is facing headwinds from Medicare cap limitations in Florida, projected to result in $18M-$25M in revenue limitations for its VITAS hospice segment in FY2025, a factor not included in prior guidance. This has led Jefferies to initiate coverage with a Hold rating and a $500 price target, projecting 8% EBITDA growth for 2026 versus the Street's 12% consensus, and RBC Capital to lower its price target. Despite the stock trading near its 52-week low, BofA Securities maintains a Buy rating, citing management's confidence in mitigating these issues without affecting core growth, supported by the company's strong financial health and positive outlook for its Roto-Rooter business.

Analysis

Chemed Corporation (CHE) is currently navigating significant headwinds centered on its VITAS hospice segment due to Medicare cap limitations in Florida. The company has disclosed an anticipated revenue limitation of $18 million to $25 million for the 2025 government fiscal year, a material headwind that was not incorporated into previous earnings guidance. This has prompted divergent reactions from analysts. Jefferies initiated coverage with a 'Hold' rating and a $500 price target, citing concerns that these cap challenges will extend into 2026 and constrain growth; the firm projects 8% EBITDA growth for 2026, well below the Street's 12% consensus. Similarly, RBC Capital lowered its price target to $640 from $674, attributing the revision to an expected $22 million cap impact in the latter half of 2025. In contrast, BofA Securities maintains a 'Buy' rating with a $708 price target, reflecting management's expressed confidence in its ability to manage the situation without impeding core growth prospects. This bullish case is supported by the company's strong financial health score, a positive outlook for its Roto-Rooter business segment which drove a strong first quarter, and management's respected track record in capital allocation. With the stock trading near its 52-week low at $463.02, the market appears to be pricing in the regulatory uncertainty over the fundamental strengths of the diversified business model.

Key Decisions for Investors

• Investors should closely monitor updates on the Medicare Cap issue in Florida, as the projected $18M-$25M revenue limitation is the primary driver of current stock underperformance and analyst downgrades.
• Given the stock is trading near its 52-week low, the current valuation may present an opportunity for those confident in management's ability to navigate the VITAS headwinds, a view supported by BofA's Buy rating.
• It is crucial to evaluate the performance of the Roto-Rooter segment, as its strong outlook provides a significant operational hedge against the regulatory challenges facing the VITAS hospice business.
• Pay close attention to upcoming earnings reports for revised guidance, which will provide the first concrete evidence of whether the financial impact of the cap issue can be successfully contained as management projects.