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Here's Why You Should Add DaVita Stock to Your Portfolio Now
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DaVita Inc. (DVA - Free Report) has been gaining from its business model. The optimism, led by a solid second-quarter 2024 performance and the acquisition of dialysis centers, is expected to contribute further. However, concerns regarding its dependence on commercial payers and macroeconomic challenges persist.
So far this year, this Zacks Rank #2 (Buy) stock has gained 50.3% compared with the industry's 14.8% growth and the S&P 500's 19.5% increase.
The renowned global comprehensive kidney care provider has a market capitalization of $13.48 billion. The company projects 17.5% growth for the next five years and expects to maintain its strong performance going forward. DaVita’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 24.24%.
Image Source: Zacks Investment Research
Upsides
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 a much larger degree of collaboration among 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.
The company’s other operations include ancillary services that are primarily aligned with its core business of providing dialysis services to its network of patients. DaVita announced that it has agreed to terms on expanding its international operations in Brazil and Colombia and entering Chile and Ecuador. The deal, involving four separate acquisitions from Fresenius Medical Care, is consistent with DaVita's disciplined investment strategy.
According to a report, the dialysis market is expected to grow more than 5% until 2032. DaVita, as a market leader, is likely to benefit from this improvement. Total U.S. dialysis treatments per day improved 1.1% sequentially during the second quarter, reflecting rising demand.
Acquisition of Dialysis Centers: DaVita's preferred business strategy involves acquiring dialysis centers and businesses that own and operate them, as well as other ancillary services. These strategies have greatly boosted the company’s top line, raising investors’ optimism.
During the second quarter of 2024, DVA acquired and opened a total of 10 and closed three dialysis centers in the United States. It also acquired 24 dialysis centers, opened three and closed two outside the United States during the same period. As of June 30, DaVita had approximately 71,300 patients in risk-based integrated care arrangements in its Integrated Kidney Care business, representing $5.4 billion in annualized medical spending. The company also had an additional 15,200 patients in other integrated care arrangements.
Strong Q2 Results: DaVita ended the second quarter of 2024 with better-than-expected results. The uptick in the company’s overall top and bottom-line performances was encouraging. The company’s sales from its dialysis services grew 6.2% to $6 billion in the first half of 2024. Besides the rising demand for dialysis services, DVA continues to improve its revenues per treatment. The metric improved 4.3% during the first half of 2024. It grew 1.5% sequentially. Rising demand, coupled with improving revenues per treatment, should continue to boost top-line growth.
DaVita’s gross profit rose 10.6% to $1.04 billion. The gross margin expanded 129 basis points (bps) to 32.8%. Adjusted operating profit totaled $676.6 million, reflecting a 16.5% surge from the prior-year quarter’s level. Adjusted operating margin expanded 188 bps to 21.2%. Growth in both margins bodes well for the stock.
Downsides
Dependence on Commercial Payers: A significant portion of DaVita’s dialysis and related lab services revenues are generated from patients whose primary payers are commercial 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.
DaVita is witnessing a positive estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for earnings has moved 3.8% north to $9.99.
The Zacks Consensus Estimate for the company’s third-quarter 2024 revenues is pegged at $3.22 billion, suggesting a 3.2% uptick from the year-ago quarter’s reported number. The consensus mark for earnings is pegged at $2.76 per share, implying a 3.2% year-over-year decline.
The Cooper Companies has a long-term growth rate of 11.4%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, delivering an average surprise of 3.87%.
COO’s shares have risen 11.5% year to date against the industry’s 2.5% decline.
Quest Diagnostics has an estimated long-term growth rate of 6.2%. DGX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.31%.
Quest Diagnostics’ shares have risen 6.6% so far this year compared with the industry’s 14.9% growth.
Baxter’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.74%.
BAX’s shares have lost 7.4% so far this year against the industry’s 10.7% growth.
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Here's Why You Should Add DaVita Stock to Your Portfolio Now
DaVita Inc. (DVA - Free Report) has been gaining from its business model. The optimism, led by a solid second-quarter 2024 performance and the acquisition of dialysis centers, is expected to contribute further. However, concerns regarding its dependence on commercial payers and macroeconomic challenges persist.
So far this year, this Zacks Rank #2 (Buy) stock has gained 50.3% compared with the industry's 14.8% growth and the S&P 500's 19.5% increase.
The renowned global comprehensive kidney care provider has a market capitalization of $13.48 billion. The company projects 17.5% growth for the next five years and expects to maintain its strong performance going forward. DaVita’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 24.24%.
Image Source: Zacks Investment Research
Upsides
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 a much larger degree of collaboration among 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.
The company’s other operations include ancillary services that are primarily aligned with its core business of providing dialysis services to its network of patients. DaVita announced that it has agreed to terms on expanding its international operations in Brazil and Colombia and entering Chile and Ecuador. The deal, involving four separate acquisitions from Fresenius Medical Care, is consistent with DaVita's disciplined investment strategy.
According to a report, the dialysis market is expected to grow more than 5% until 2032. DaVita, as a market leader, is likely to benefit from this improvement. Total U.S. dialysis treatments per day improved 1.1% sequentially during the second quarter, reflecting rising demand.
Acquisition of Dialysis Centers: DaVita's preferred business strategy involves acquiring dialysis centers and businesses that own and operate them, as well as other ancillary services. These strategies have greatly boosted the company’s top line, raising investors’ optimism.
During the second quarter of 2024, DVA acquired and opened a total of 10 and closed three dialysis centers in the United States. It also acquired 24 dialysis centers, opened three and closed two outside the United States during the same period. As of June 30, DaVita had approximately 71,300 patients in risk-based integrated care arrangements in its Integrated Kidney Care business, representing $5.4 billion in annualized medical spending. The company also had an additional 15,200 patients in other integrated care arrangements.
Strong Q2 Results: DaVita ended the second quarter of 2024 with better-than-expected results. The uptick in the company’s overall top and bottom-line performances was encouraging. The company’s sales from its dialysis services grew 6.2% to $6 billion in the first half of 2024. Besides the rising demand for dialysis services, DVA continues to improve its revenues per treatment. The metric improved 4.3% during the first half of 2024. It grew 1.5% sequentially. Rising demand, coupled with improving revenues per treatment, should continue to boost top-line growth.
DaVita’s gross profit rose 10.6% to $1.04 billion. The gross margin expanded 129 basis points (bps) to 32.8%. Adjusted operating profit totaled $676.6 million, reflecting a 16.5% surge from the prior-year quarter’s level. Adjusted operating margin expanded 188 bps to 21.2%. Growth in both margins bodes well for the stock.
Downsides
Dependence on Commercial Payers: A significant portion of DaVita’s dialysis and related lab services revenues are generated from patients whose primary payers are commercial 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.
DaVita Inc. Price
DaVita Inc. price | DaVita Inc. Quote
Estimate Trend
DaVita is witnessing a positive estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for earnings has moved 3.8% north to $9.99.
The Zacks Consensus Estimate for the company’s third-quarter 2024 revenues is pegged at $3.22 billion, suggesting a 3.2% uptick from the year-ago quarter’s reported number. The consensus mark for earnings is pegged at $2.76 per share, implying a 3.2% year-over-year decline.
Other Key Picks
Some other top-ranked stocks in the broader medical space are The Cooper Companies (COO - Free Report) , Quest Diagnostics (DGX - Free Report) and Baxter International (BAX - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Cooper Companies has a long-term growth rate of 11.4%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, delivering an average surprise of 3.87%.
COO’s shares have risen 11.5% year to date against the industry’s 2.5% decline.
Quest Diagnostics has an estimated long-term growth rate of 6.2%. DGX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.31%.
Quest Diagnostics’ shares have risen 6.6% so far this year compared with the industry’s 14.9% growth.
Baxter’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 3.74%.
BAX’s shares have lost 7.4% so far this year against the industry’s 10.7% growth.