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Analyst Blog

On Apr 2, 2013, shares of DaVita HealthCare Partners Inc. (DVA - Analyst Report) hit a 52-week high of $128.74.

In Jan 2013, DaVita acquired 5 dialysis centers in Portugal and 4 in Poland from rival Fresenius Medical Care. In the same month, the company also entered Taiwan through a joint venture with Riches Healthcare to form DaVita Taiwan.

Over the past year, DaVita has expanded its global reach through significant acquisitions and alliances in the rapidly developing economies of Malaysia, Saudi Arabia, China, India and Germany, among others.

DaVita reported positive earnings surprise in 3 of the 4 quarters in 2012, with an average beat of 1.29%. The Zacks Consensus Estimate for the first quarter is currently pegged at $1.78, representing a year over year increase of 22.2%.

DaVita has been generating strong operating cash flow based on improved earnings, robust cash collections and the timing of payments for working capital expenditures. Operating cash flow increased at a 3-year CAGR (2009–2012) of 18%.

Moreover, DaVita is rapidly expanding its international presence and is actively acquiring domestic companies. The merger with HealthCare Partners, in Nov 2012, is supporting and augmenting the company’s primary care and specialty physician services as well as hospital and other healthcare services.

The valuation of DaVita looks reasonable. Although the forward price-to-earnings and price-to-book value ratios are higher than peers, the return on equity of 20.9% is higher than the peer group average of 17.5%. The 1-year return from the stock is 41.1%, much above S&P’sreturn of 11.5%. 

DaVita currently carries a Zacks Rank #3 (Hold). Other healthcare companies worth considering are Addus HomeCare Corporation (ADUS - Snapshot Report) – Zacks Rank #1 (Strong Buy), China Cord Blood Corporation (CO - Snapshot Report) – Zacks Rank #2 (Buy), and LCA-Vision Inc. – Zacks Rank #2 (Buy).

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