DaVita Inc. (DVA Quick QuoteDVA - Free Report) has been gaining from its business model. The optimism, led by a solid first-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.

This Zacks Rank #2 (Buy) company has gained 31.7% year to date compared with 5% growth of the industry.The S&P 500 has increased 16.1% during the same time frame.

The renowned global comprehensive kidney care provider has a market capitalization of $12.14 billion. The company projects 13.6% 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 29.35%.

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Let’s delve deeper.

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 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.

DaVita is steadily expanding in the international markets. In the past few years, the company has strengthened its position in the emerging and developing markets of Brazil, China, Colombia, Germany, India, Malaysia, Netherlands, Poland, Portugal and Saudi Arabia through strategic alliances as well as acquisitions of dialysis centers. These are expected to help DaVita deliver more efficient patient care. Currently, the company is seeking to expand in major European and Asian countries via acquisitions and partnerships.

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. Earlier this year, DVA extended the pilot phase of a previously announced supply and collaboration agreement with Nuwellis until Aug 31, 2024. At the conclusion of the pilot phase, DaVita may extend the supply agreement with Nuwellis for continued provision of both inpatient and outpatient ultrafiltration services for up to 10 years.

As of Mar 31, 2024, DaVita provided dialysis services to around 258,600 patients at 3,092 outpatient dialysis centers, of which 2,665 were in the United States and 427 were located across 12 other countries. In the first quarter of the year, the company acquired and opened a total of 11 dialysis centers in the United States. It also acquired 67 dialysis centers and opened two dialysis centers outside the country during the same period.

Strong Q1 Results: DaVita’s solid first-quarter 2024 results buoy optimism. The company registered an uptick in its overall top and bottom-line numbers. Strength in both dialysis patient service and Other revenues during the period was also seen. The expansion of both margins bodes well for DVA.

Downsides

Dependence on Commercial Payers: A considerable portion of DaVita's income from dialysis and associated laboratory services comes from patients covered primarily by commercial payers. The payments from commercial payers are the main contributors to the company's profitability. However, there is a risk that individuals may transition from private insurance plans to government-owned ones, owing to the significant difference in reimbursement rates, particularly if unemployment rates increase.

Macroeconomic Concerns: DaVita's operations are significantly influenced by a range of worldwide economic and market dynamics, such as the COVID-19 pandemic, inflationary pressures, escalating interest rates, labor market complexities and interruptions in the supply chain. Furthermore, the ongoing conflict between Russia and Ukraine intensifies these challenges, leading to heightened unpredictability and market fluctuations.

Estimate Trend

DaVita is witnessing a positive estimate revision trend for 2024. In the past 60 days, the Zacks Consensus Estimate for its earnings has moved 1.4% north to $9.23.

The Zacks Consensus Estimate for the company’s second-quarter 2024 revenues is pegged at $3.16 billion, suggesting a 5.4% uptick from the year-ago quarter’s reported number. The Zacks Consensus Estimate for its earnings is pinned at $2.47 per share, implying growth of 18.6% from the year-earlier figure.

Other Key Picks

Some other top-ranked stocks in the broader medical space that have announced quarterly results are RadNet (RDNT Quick QuoteRDNT - Free Report) , Ecolab (ECL Quick QuoteECL - Free Report) and Universal Health Services (UHS Quick QuoteUHS - Free Report) .

RadNet, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated growth rate of 18% for 2024. RDNT’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 158.95%. You can see the complete list of today’s Zacks #1 Rank stocks here.

RadNet’s shares have risen 70.4% compared with the industry’s 4.9% growth year to date.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.3%. ECL’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 1.7%.

Ecolab’s shares have rallied 19% year to date against the industry’s 21.9% decline.

Universal Health Services, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 14.8%. UHS’ earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.12%.

Universal Health Services’ shares have rallied 21.6% year to date compared with the industry’s 19.9% growth.