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Here's Why You Should Retain DaVita (DVA) Stock for Now

DaVita Inc. DVA is well-poised for growth in the coming quarters, courtesy of strength in its DaVita Kidney Care. The optimism led by a solid third-quarter 2022 performance, along with the acquisition of dialysis centers, is expected to contribute further. However, concerns regarding stiff competition and dependence on commercial payers persist.

Over the past year, this Zacks Rank #3 (Hold) stock has lost 29.4% compared with 13.9% decline of the industry and an 8.9% fall of the S&P 500.

The renowned global comprehensive kidney care provider has a market capitalization of $6.97 billion. The company projects 8.4% growth for the next five years and expects to maintain its strong performance. DaVita’s earnings yield of 8.4% is favorable to the industry’s yield of 3.3%.

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Let’s delve deeper.

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 Integrated Kidney Care, as of Sep 30, 2022, the company had approximately 43,000 patients in risk-based integrated care arrangements, representing approximately $3.3 billion in annualized medical spend. DaVita also had an additional 12,000 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 Sep 30, 2022, DaVita provided dialysis services to around 243,800 patients at 3,128 outpatient dialysis centers, of which 2,776 were U.S. centers while 352 were located across 11 other countries. During the third quarter of 2022, the company acquired five dialysis centers in the United States and three dialysis centers outside the United States.

DaVita’s international dialysis operations have continued to grow steadily and expand on the back of acquiring and developing outpatient dialysis centers in various strategic markets.

Strong Q3 Results: DaVita’s solid third-quarter 2022 results buoy optimism. The company registered an uptick in its overall top line and both its segments’ revenues during the quarter. The acquisition of several dialysis centers and opening of others, both within the United States and overseas, were also encouraging. The increased hospital inpatient dialysis revenues registered during the third quarter were also promising.


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.

Stiff Competition: DaVita, in its U.S. dialysis business, faces intense competition from large and medium-sized providers, among others. U.S. regulations require medical directors for each center. As the company and its competitors continue to grow and open new dialysis centers, DaVita may not be able to retain an adequate number of nephrologists to serve as medical directors.

Estimate Trend

DaVita is witnessing a negative estimate revision trend for 2023. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved 17.7% south to $6.32.

The Zacks Consensus Estimate for the company’s fourth-quarter 2022 revenues is pegged at $2.94 billion, suggesting a 0.1% dip from the year-ago quarter’s reported number.

This compares to our fourth-quarter revenue estimate of $2.83 billion, suggesting a 0.3% decline from the year-ago quarter’s reported number.

Key Picks

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Cardinal Health, Inc. CAH and Merit Medical Systems, Inc. MMSI.

AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has gained 0.6% against the industry’s 19% decline in the past year.

Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.7%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 3%.

Cardinal Health has gained 47.3% against the industry’s 0.9% decline over 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 beat being 25.4%.

Merit Medical has gained 28.3% against the industry’s 0.9% decline over the past year.

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