Shares of DaVita Inc. (DVA Quick QuoteDVA - Free Report) scaled a new 52-week high of $136.29 on Mar 5, before closing the session slightly lower at $134.65.

Over the past year, this Zacks Rank #1 (Strong Buy) stock has gained 70.8% compared with the industry’s 22.4% rise and the S&P 500’s 25.4% growth.

Over the past five years, the company registered earnings growth of 15.5% compared with the industry’s 5.8% rise. The company’s long-term expected growth rate of 12.1% compares with the industry’s growth projection of 11.2%. DaVita’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 35.6%.

DaVita is witnessing an upward trend in its stock price, prompted by its business model. The optimism led by a solid fourth-quarter 2023 performance and the acquisition of dialysis centers are expected to contribute further. However, concerns regarding dependence on commercial payers and macroeconomic challenges persist.

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Let’s delve deeper.

Key Growth Drivers

Business Model: Investors are optimistic about DaVita’s patient-centric care model, which leverages its platform of kidney care services to maximize patient choice in both models and modalities of care. Value-based arrangements are proliferating in the kidney health space. These arrangements allow for a much larger degree of collaboration between nephrologists, providers and transplant programs, resulting in a more complete understanding of each patient’s clinical needs. Per management, this is expected to lead to better care coordination and earlier intervention.

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 investors’ optimism.

As of Dec 31, 2023, DaVita provided dialysis services to around 250,200 patients at 3,042 outpatient dialysis centers, of which 2,675 were U.S. centers while 367 were located across 11 other countries. During the fourth quarter of 2023, the company opened a total of two new dialysis centers in the United States and acquired eight dialysis centers outside the United States.

Strong Q4 Results: DaVita’s solid fourth-quarter 2023 results buoy optimism. The company registered an uptick in overall top line and dialysis patient service and Other revenues. DaVita also recorded a per-day increase in total U.S. dialysis treatments during the fourth quarter on a sequential basis.

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.

Macroeconomic Concerns: DaVita's business is significantly impacted by various global economic and market conditions. These include challenges from the COVID-19 pandemic, inflation, rising interest rates, labor market difficulties and supply-chain disruptions. The ongoing conflict between Russia and Ukraine exacerbates these issues, contributing to widespread uncertainty and volatility.

Other Key Picks

A few other top-ranked stocks in the broader medical space are DexCom, Inc. (DXCM Quick QuoteDXCM - Free Report) , Cardinal Health, Inc. (CAH Quick QuoteCAH - Free Report) and Cencora, Inc. (COR Quick QuoteCOR - Free Report) .

DexCom, carrying a Zacks Rank #2 (Buy), has an estimated long-term growth rate of 33.1%. DXCM’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 32.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

DexCom’s shares have gained 7% compared with the industry’s 10.9% rise in the past year.

Cardinal Health, flaunting a Zacks Rank of 1 at present, has an estimated long-term growth rate of 14.2%. CAH’s earnings surpassed estimates in each of the trailing four quarters, with the average being 15.6%.

Cardinal Health has gained 54.8% compared with the industry’s 14% rise in the past year.

Cencora, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 9.8%. COR’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 6.7%.

Cencora’s shares have rallied 53.6% compared with the industry’s 1.1% rise in the past year.