Jefferies' upgrade of Chemed comes after the company reported third-quarter results that surpassed analyst expectations, leading to a more than 2% increase in shares during premarket trading.
Analyst Brian Tanquilut highlighted that Chemed has historically been viewed as a defensive investment, and as it overcomes recent operational issues that affected its earnings visibility and growth, the stock is expected to regain its premium valuation.
Chemed's shares have risen approximately 16% over the past year, although they have underperformed compared to the S&P 500 healthcare sector, which has increased by 23%. The company faces challenges from Medicare hospice caps that may limit its client base and income potential in 2025, but Tanquilut noted that Chemed has effectively addressed these issues.
Additionally, the Roto-Rooter plumbing business is showing signs of stabilization, which, combined with increased marketing efforts, is expected to lead to a return to healthy earnings growth. Currently, among the five analysts covering Chemed, three have a buy or strong buy rating, while two maintain a hold rating