Chemed's Plunge: Was the Miss Already Priced In?

The core earnings print was a clear miss, but the market's reaction suggests the worst was already priced in. For the fourth quarter, Chemed reported revenue of $639.3 million, which fell short of the $659.1 million analysts expected. More significantly, adjusted EPS came in at $6.42, missing the consensus estimate by a notable 8.7%. The stock's plunge to a new 52-week low and a drop of over 13% from its prior close signals a sharp "sell the news" dynamic.

The deeper expectation gap, however, lies in the full-year outlook. While the quarterly miss was material, the company had already signaled a reset. Its adjusted EPS guidance for the upcoming financial year 2026 is $23.75 at the midpoint, which itself misses analyst estimates by 6.5%. This guidance reset is the key. It means the market's forward view was already being revised lower, absorbing some of the disappointment from the quarterly report. The residual gap is that the company's actual performance may have been worse than even the revised full-year numbers implied, or that the guidance miss was larger than the whisper number had allowed for.

In essence, the market had priced in softness via the downwardly revised outlook. The stock's violent reaction indicates that the actual earnings print either confirmed fears more harshly than expected or that the guidance miss was more severe than the whisper number had anticipated. The result is a classic expectation gap: the reality was worse than the already-downwardly adjusted price.

Segment Disappointment: Which Parts Were Unexpected?

The quarterly miss was a composite of two distinct stories. On one hand, VITAS delivered solid top-line growth, but at a hidden cost. On the other, Roto-Rooter's decline dragged the entire company's revenue flat. The market's reaction suggests the unexpected element was the profitability hit from VITAS's mix shift, which compounded the known weakness at Roto-Rooter.

VITAS's 6% admissions growth was a positive surprise, but the story behind the numbers was a negative one. The segment's adjusted EBITDA margin declined 79 basis points to 21.7%. Management explicitly tied this drop to a shift toward lower-margin hospital-based, short-stay admissions. This is the kind of operational trade-off that can surprise investors if not anticipated. While the revenue growth itself was in line with the company's 2026 guidance range of 5.5%-6.5%, the margin pressure indicates the path to that growth is more costly than hoped. The market may have been expecting VITAS to grow without sacrificing profitability, making this a key disappointment.

Roto-Rooter's performance was a clear miss on both fronts. The segment's revenue fell 3.7% year-over-year, and its adjusted EBITDA plunged 21.1% with a margin collapse of 477 basis points. The root causes-rising write-offs and insurance scrutiny-are operational headwinds that were likely not fully priced in. The guidance for Roto-Rooter to grow just 3.0-3.5% in 2026 now looks like a reset from prior expectations, acknowledging the underlying business is under pressure.

The bottom line is that the expectation gap widened because the quarterly results confirmed that the company's two core businesses are facing distinct but material challenges. VITAS is growing, but less profitably. Roto-Rooter is shrinking, with a deteriorating cost structure. The flat total revenue of $639.3 million reflects this tug-of-war. For the market, the reality was worse than the whisper number because it showed two segments failing to meet profitability expectations simultaneously.

The New Expectation: Catalysts and Risks for 2026

The stock's plunge to a new 52-week low creates a clear valuation disconnect. After a 13% drop on the earnings report, shares are trading well below their recent highs. This sharp move suggests the market has aggressively repriced the stock for the new, lower expectations set by the guidance reset. The question now is whether this new price offers a genuine opportunity or if further downside remains priced in.

The near-term catalysts are binary and tied directly to the two major headwinds. First, the resolution of Medicare cap liabilities is a key overhang. Management reported a nearly $25 million decrease in the fourth-quarter cap liability and stated there is "no billing limitation within the Florida combined program" as of January. The 2026 guidance projects a cap limitation of just $9.5 million, a major improvement from $27.2 million last year. Any continued progress here would be a positive surprise, directly boosting cash flow and earnings visibility.

Second, execution on the 2026 growth targets is critical. The company has set a clear path: VITAS revenue growth of 5.5%-6.5% and Roto-Rooter growth of 3.0%-3.5%. The market will scrutinize the first-quarter results for signs of stabilization, particularly in Roto-Rooter's deteriorating margins and VITAS's margin pressure from its patient mix. The guidance miss of 6.5% for the full year implies the market is already skeptical of hitting the midpoint. Success here would require both segments to outperform their own lowered expectations.

The risks, however, remain substantial. The guidance itself is a reset, not a beat. The company's adjusted EPS guidance of $23.75 at the midpoint still misses analyst estimates by 6.5%, meaning the market consensus is still above management's own outlook. This creates a ceiling. Furthermore, the operational pressures are persistent. VITAS's margin decline due to a shift toward lower-margin admissions and Roto-Rooter's revenue and margin collapse are structural issues that management has not yet solved. Any further deterioration in Medicare reimbursement rates or insurance scrutiny would compound these problems.

The bottom line is a setup defined by a wide expectation gap. The stock's fall has priced in the worst of the known headwinds. Yet, the guidance miss and margin pressures are not gone; they are the new baseline. For the stock to rally, Chemed must not only meet but exceed this new, lower bar. The catalysts are there, but they are not guarantees. The market's reaction will hinge on whether the first-quarter print confirms a stabilization or reveals the pressures are deeper than even the revised outlook allowed.