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DaVita Banks on Acquisitions, Escalating Expenses a Concern

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On Apr 10, we issued an updated research report Denver, CO-based DaVita HealthCare Partners Inc. (DVA - Free Report) , a leading provider of dialysis services in the U.S. to patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). DaVita currently carries a Zacks Rank #3 (Hold).

Acquiring dialysis centers and businesses that own and operate dialysis centers as well as other ancillary services has been DaVita’s preferred business strategy for long. This strategy has boosted the company’s top line to a large extent.

Of the major acquisitions in the recent past, The Everett Clinic, a medical group within the DaVita Medical Group division, entered into a definitive agreement to acquire Totem Lake Family Medicine, a renowned medical group. The transaction is expected to be complete by Apr 1.

Further, DaVita announced that HealthCare Partners has entered into a strategic partnership with Cigna, a global health insurance service company. Per the terms of the agreement, the duo will offer HMO health plans (Health Maintenance Organization) and integrated health care options to employers in and around Los Angeles.

Steady expansion in the overseas markets through strategic alliances and acquisition of dialysis centers has played a key role in boosting growth for DaVita. In the past few years, the company has strengthened its position in the emerging and developing markets of Columbia, Portugal, Malaysia, Taiwan, Saudi Arabia, China, India and Germany. This is expected to help DaVita deliver more efficient patient care.

However, the company expects a hike in its dialysis and related lab services general and administrative expenses in the upcoming quarters. DaVita’s plan to undertake initiatives to improve its information technology infrastructure is also likely to result in higher costs. Investments to support regulatory compliance and legal matters as well as efforts to tap into new business opportunities are also likely to drive expenses.

Share Price Trend

DaVita posted an impressive show on the bourse on a year-to-date basis. The company gained 6.3%, higher than the Zacks categorized Medical Outpatient And Home Healthcare sub-industry’s addition of almost 2.2%.

Notably, the company’s streak of positive earnings surprises is noteworthy, which accounts for an average beat of 4.4% over the last four quarters.

Key Picks

Better-ranked stocks in the broader medical sector include Inogen Inc. (INGN - Free Report) , Hologic, Inc. (HOLX - Free Report) and Sunshine Heart Inc . Notably, all the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen has a long-term expected earnings growth rate of 17.50%. The stock represents an impressive one-year return of 64.2%.

Hologic has a long-term expected earnings growth rate of 11.33%. The stock has a stellar one-year return of roughly 21.3%.

Sunshine Heart posted a positive earnings surprise of 58.24% in the last reported quarter. The stock has a stellar EPS growth record (last 3–5 years of actual earnings) of almost 22%.

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