DaVita Inc. (DVA Quick QuoteDVA - Free Report) is well-poised for growth in the coming quarters, courtesy of strength in its DaVita Kidney Care. The optimism led by a solid first-quarter 2023 performance and the acquisition of dialysis centers are expected to contribute further. However, concerns regarding dependence on commercial payers and integration risks persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 3.3% compared with 18.8% decline of the industry and a 0.4% rise of the S&P 500.

The renowned global comprehensive kidney care provider has a market capitalization of $8.49 billion. The company projects 14.6% growth for the next five years and expects to maintain its strong performance. DaVita’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same in the other, the average surprise being 17.3%.

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Let’s delve deeper.

Strong Q1 Results: DaVita’s solid first-quarter 2023 results buoy optimism. The company registered an uptick in its overall top line and both segments during the period. DaVita also recorded an increase in total U.S. dialysis treatments during the quarter.

DaVita Kidney Care: We are optimistic about DaVita Kidney Care, the major revenue-generating segment of DVA. It specializes in a broad array of dialysis services, significantly contributing to the company's top line. With respect to DaVita’s Integrated Kidney Care, as of Mar 31, 2023, the company had approximately 67,000 patients in risk-based integrated care arrangements, representing approximately $5.2 billion in annualized medical spend. DaVita also had an additional 15,000 patients in other integrated care arrangements.

Acquisition of Dialysis Centers: Acquiring dialysis centers and businesses that own and operate dialysis centers as well as other ancillary services is DaVita’s preferred business strategy. These strategies have boosted the company’s top line to a large extent, raising our optimism.

As of Mar 31, 2023, DaVita provided dialysis services to around 246,000 patients at 3,058 outpatient dialysis centers, of which 2,707 were U.S. centers while 351 were located across 11 other countries. During the first quarter of 2023, the company opened a total of three new dialysis centers in the United States. It also opened three dialysis centers outside the United States in the same period.

Downsides

Dependence on Commercial Payers: A significant portion of DaVita’s dialysis and related lab services’ revenues are generated from patients who have commercial payers as the primary payers. The payments received from commercial payers are the primary generators of profit. However, there remains a risk of people shifting from commercial insurance schemes to government schemes due to the wide disparity in payment rates in case of a rise in unemployment.

Integration Risks: DaVita’s business strategy includes growth through acquisitions of dialysis centers and other businesses, as well as entry into joint ventures. The company may engage in acquisitions, mergers, joint ventures or dispositions or expand into new business models, which may affect its operations.

Estimate Trend

DaVita is witnessing a positive estimate revision trend for 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 11.5% north to $6.69.

The Zacks Consensus Estimate for the company’s second-quarter 2023 revenues is pegged at $2.94 billion, suggesting a 0.6% uptick from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) , Merit Medical Systems, Inc. (MMSI Quick QuoteMMSI - Free Report) and Boston Scientific Corporation (BSX Quick QuoteBSX - Free Report) .

Hologic, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 5.1% for fiscal 2024. HOLX’s earnings surpassed estimates in all the trailing four quarters, the average being 27.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hologic has gained 3.8% against the industry’s 3.3% decline in the past year.

Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.2%.

Merit Medical has gained 32.7% compared with the industry’s 4.1% rise over the past year.

Boston Scientific, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.5%. BSX’s earnings surpassed estimates in two of the trailing four quarters and missed in the other two, the average surprise being 1.9%.

Boston Scientific has gained 26.6% against the industry’s 33.8% decline over the past year.