Chemed Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chemed (NYSE: CHE  ) sank 11% on Wednesday after a former manager filed a lawsuit against the company, alleging that it conspired with two HMOs to admit their patients into hospices even though they weren't dying.

So what: The U.S. government has also suspected Vitas -- a unit of Chemed -- of defrauding Medicare and Medicaid out of "hundreds of millions of dollars," so investors are understandably not waiting around to get out. Vitas spokeswoman Kal Mistry naturally tried to reassure everyone that it has "consistently been in compliance with Medicare and Medicaid rules," but the new cloud of uncertainty will nonetheless put pressure on the shares.

Now what: I'd wait for more details before pushing the panic button. While the Department of Justice is seeking internal Vitas documents in its investigation of alleged abuses, it isn't getting involved in the whistleblower suit right now. With the stock hitting a new 52-week low and trading at a forward P/E of 10, Chemed might be a hated stock worth loving.

Interested in more info on Chemed? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Tryany of our Foolish newsletter services free for 30 days.

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  • Report this Comment On November 29, 2011, at 4:39 PM, KWKtrue wrote:

    Chemed will find unhappy shareholders bringing a lawsuit on soon enough, these cases often follow a false claims act case:

    http://www.lawyerviews.com/chemed-che-lawsuit.html

  • Report this Comment On December 01, 2011, at 3:18 PM, thefixerisin wrote:

    Chemed is also party to several Lawsuits involving its company Roto Rooter, a Federal Faif labor law class action is going to Force Roto Rooter to change the way it does business at the cost of millions of dollars of previously avoided overhead(already well into discovery). In Minnesotoa a Truth in repair law class action just arose in which the company was doing un-needed sewer line repairs and in Massachusetts Roto Rooter is being sued by former employees for using unlicensed People posing as Plumbers. This case also sparked a state Investigation on behalf of the consumers who thought they were getting a Licensed Plumber. RR is the Primary revenue other than Vistas...both seem to be in a lot of trouble.

  • Report this Comment On December 01, 2011, at 3:19 PM, thefixerisin wrote:

    I forgto to mention the sex bias suit against RR

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