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Forget DaVita (DVA), Buy These 3 Lucrative Medical Care Stocks
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2021 is almost over and the overall scenario does not look bright for DaVita Inc. (DVA - Free Report) . The company’s tepid performance in the third quarter of 2021 reflected the significant impact of the Delta variant on companies providing medical services and care. The easing of prior restrictions and mass vaccinations in the first half of the year aided DaVita and other companies in this space in recovering. However, the improvement was short-lived.
In the second half of the year, cases began to rise due to new virus variants that led to increasing mortalities and higher mistreatment. In fact, per management at DaVita, total U.S. dialysis treatments in the third quarter reflected a per-day decline of 2.5% on a year-over-year basis and 0.6% sequentially. With the Omicron variant becoming the dominant strain in the United States, the adverse business impacts are likely to persist in the coming months.
Year to date, DaVita’s shares have lost 3.4% against the S&P 500 index’s rally of 28.4%. Earnings estimates for 2021 and 2022 have decreased by 1.1% and 6.2%, respectively, over the past three months.
In such a scenario, we ask investors to avoid this Zacks Rank #5 (Strong Sell) stock and instead focus on medical care stocks like Quest Diagnostics Incorporated (DGX - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) , Co-Diagnostics, Inc. (CODX - Free Report) that have shown promise amid the pandemic-induced challenges and are well-positioned for growth in 2022.
Before discussing these stocks, let’s analyze the primary factors that are weighing on DVA stock:
What’s Weighing on DaVita?
With the emergence of new and highly transmissible variants, DaVita is likely to grapple with several headwinds in 2022. Per the third-quarter 2021 earnings call, the company is projecting the end of the temporary sequestration suspension that would result in a $70 million headwind for the full year of 2022.
Apart from this, some of the costs that increased during the pandemic, especially for personal protective equipment (PPE), are not anticipated to return to pre-COVID levels quickly because of the challenging global supply chain environment. Most importantly, in 2022, the impact of COVID-19 on mortality remains a massive swing factor as another winter surge in cases can negatively impact treatment volume.
In 2022, the company projects higher labor costs due to market pressures and expects a net headwind of $50-$75 million. Additionally, DaVita has narrowed its 2021 guidance. Adjusted earnings per share is projected to be $8.80-$9.15, where the upper end of the outlook has been reduced from the prior projected range of $8.80 to $9.40.
Medical Care Stocks: Prudent to Invest
Despite the uncertainty induced by the pandemic and the emergence of the Omicron variant, a number of companies involved in medical care and services are experiencing substantial recovery because of their nature of business. Amid the challenges, utilization and influence of AI and IT for quick and improved patient care, self-automated home-based care and a shift to a value-based model in terms of payment system have grown significantly.
3 Medical Care Stocks Set for a Solid 2022
Quest Diagnostics: Quest Diagnostics reported better-than-expected third-quarter 2021 adjusted earnings and revenues. Base business rebounded in September following a temporary softness in in summer. Quest Diagnostics noted that its base business continued to improve sequentially in the third quarter reflecting the ongoing recovery trend of the industry. In COVID-19 testing, molecular diagnostic testing volumes increased sequentially in the third quarter driven by the massive spread of the Delta variant over the course of the summer. After raising its full-year projection in September, the Zacks Rank #2 (Buy) company further increased the same on its third-quarter earnings call. The latest increase in guidance for the remainder of the year is based on higher-than-anticipated COVID-19 volumes and the continued rebound in base business despite rising labor costs and inflationary pressure. The company announced at its March 2021 investor day that the growing momentum of the base business positions it well to deliver a strong 2022 outlook. Year-to-date, the stock has improved 42.8%.
Quest Diagnostics has been witnessing an upward estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 3.9% to $8.43. The company’s earnings yield of 8.2% compares favorably with the industry’s 3.5%.
AMN Healthcare: AMN Healthcare exited the third quarter of 2021 with better-than-expected results. The company reported robust performances across each of its core segments, and both earnings and revenues improved in the quarter under review. Per management, increased healthcare utilization and a tight labor market have led to record high demand in several areas of the company’s business. This, in turn, bodes well for the Zacks Rank #1 company’s collaborations and innovations, which are aimed at providing greater access to patient care, thus fueling confidence. Upbeat revenue guidance for the fourth quarter of 2021 is encouraging. Year-to-date, the stock has improved 78.6%.
AMN Healthcare’s long-term expected earnings growth rate is pegged at 16.2%. Its earnings beat estimates in each of the trailing four quarters, the average surprise being 19.5%.
Co-Diagnostics: Co-Diagnostics delivered encouraging third-quarter 2021 results with record revenue on the back of sales of the Logix Smart COVID-19 Test. The quarter exhibited sustained growth and solid positioning for sustainability. The company’s superior-quality products, which displayed robust performance (validated by laboratories and regulatory bodies globally), contributed to the aforementioned record sales. The Zacks Rank #2 company also announced that none of the mutations in the heavily mutated Omicron variant are projected to interfere with any of its portfolio of COVID-19 PCR diagnostic assays. Year-to-date, the stock has lost 2.7%.
Co-Diagnostics’ has been witnessing an upward estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 102.8% to 75 cents. The company’s earnings yield of 12% compares favorably with the industry’s (1.3%).
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Forget DaVita (DVA), Buy These 3 Lucrative Medical Care Stocks
2021 is almost over and the overall scenario does not look bright for DaVita Inc. (DVA - Free Report) . The company’s tepid performance in the third quarter of 2021 reflected the significant impact of the Delta variant on companies providing medical services and care. The easing of prior restrictions and mass vaccinations in the first half of the year aided DaVita and other companies in this space in recovering. However, the improvement was short-lived.
In the second half of the year, cases began to rise due to new virus variants that led to increasing mortalities and higher mistreatment. In fact, per management at DaVita, total U.S. dialysis treatments in the third quarter reflected a per-day decline of 2.5% on a year-over-year basis and 0.6% sequentially. With the Omicron variant becoming the dominant strain in the United States, the adverse business impacts are likely to persist in the coming months.
Year to date, DaVita’s shares have lost 3.4% against the S&P 500 index’s rally of 28.4%. Earnings estimates for 2021 and 2022 have decreased by 1.1% and 6.2%, respectively, over the past three months.
In such a scenario, we ask investors to avoid this Zacks Rank #5 (Strong Sell) stock and instead focus on medical care stocks like Quest Diagnostics Incorporated (DGX - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) , Co-Diagnostics, Inc. (CODX - Free Report) that have shown promise amid the pandemic-induced challenges and are well-positioned for growth in 2022.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Before discussing these stocks, let’s analyze the primary factors that are weighing on DVA stock:
What’s Weighing on DaVita?
With the emergence of new and highly transmissible variants, DaVita is likely to grapple with several headwinds in 2022. Per the third-quarter 2021 earnings call, the company is projecting the end of the temporary sequestration suspension that would result in a $70 million headwind for the full year of 2022.
Apart from this, some of the costs that increased during the pandemic, especially for personal protective equipment (PPE), are not anticipated to return to pre-COVID levels quickly because of the challenging global supply chain environment. Most importantly, in 2022, the impact of COVID-19 on mortality remains a massive swing factor as another winter surge in cases can negatively impact treatment volume.
In 2022, the company projects higher labor costs due to market pressures and expects a net headwind of $50-$75 million. Additionally, DaVita has narrowed its 2021 guidance. Adjusted earnings per share is projected to be $8.80-$9.15, where the upper end of the outlook has been reduced from the prior projected range of $8.80 to $9.40.
Medical Care Stocks: Prudent to Invest
Despite the uncertainty induced by the pandemic and the emergence of the Omicron variant, a number of companies involved in medical care and services are experiencing substantial recovery because of their nature of business. Amid the challenges, utilization and influence of AI and IT for quick and improved patient care, self-automated home-based care and a shift to a value-based model in terms of payment system have grown significantly.
3 Medical Care Stocks Set for a Solid 2022
Quest Diagnostics: Quest Diagnostics reported better-than-expected third-quarter 2021 adjusted earnings and revenues. Base business rebounded in September following a temporary softness in in summer. Quest Diagnostics noted that its base business continued to improve sequentially in the third quarter reflecting the ongoing recovery trend of the industry. In COVID-19 testing, molecular diagnostic testing volumes increased sequentially in the third quarter driven by the massive spread of the Delta variant over the course of the summer. After raising its full-year projection in September, the Zacks Rank #2 (Buy) company further increased the same on its third-quarter earnings call. The latest increase in guidance for the remainder of the year is based on higher-than-anticipated COVID-19 volumes and the continued rebound in base business despite rising labor costs and inflationary pressure. The company announced at its March 2021 investor day that the growing momentum of the base business positions it well to deliver a strong 2022 outlook. Year-to-date, the stock has improved 42.8%.
Quest Diagnostics has been witnessing an upward estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 3.9% to $8.43. The company’s earnings yield of 8.2% compares favorably with the industry’s 3.5%.
AMN Healthcare: AMN Healthcare exited the third quarter of 2021 with better-than-expected results. The company reported robust performances across each of its core segments, and both earnings and revenues improved in the quarter under review. Per management, increased healthcare utilization and a tight labor market have led to record high demand in several areas of the company’s business. This, in turn, bodes well for the Zacks Rank #1 company’s collaborations and innovations, which are aimed at providing greater access to patient care, thus fueling confidence. Upbeat revenue guidance for the fourth quarter of 2021 is encouraging. Year-to-date, the stock has improved 78.6%.
AMN Healthcare’s long-term expected earnings growth rate is pegged at 16.2%. Its earnings beat estimates in each of the trailing four quarters, the average surprise being 19.5%.
Co-Diagnostics: Co-Diagnostics delivered encouraging third-quarter 2021 results with record revenue on the back of sales of the Logix Smart COVID-19 Test. The quarter exhibited sustained growth and solid positioning for sustainability. The company’s superior-quality products, which displayed robust performance (validated by laboratories and regulatory bodies globally), contributed to the aforementioned record sales. The Zacks Rank #2 company also announced that none of the mutations in the heavily mutated Omicron variant are projected to interfere with any of its portfolio of COVID-19 PCR diagnostic assays. Year-to-date, the stock has lost 2.7%.
Co-Diagnostics’ has been witnessing an upward estimate revision trend for 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 102.8% to 75 cents. The company’s earnings yield of 12% compares favorably with the industry’s (1.3%).