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DaVita Stock Rallies 17% in 3 Months: Is it Still Worth Buying?
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Shares of DaVita (DVA - Free Report) have risen 17.1% in the past three months, outperforming the Zacks Medical - Outpatient and Home Healthcare industry’s growth of 13.5% and the broader Zacks Medical sector’s return of 2.5%. DVA stock has risen 54.8% year to date, primarily due to rising demand for its dialysis services.
The uptrend is likely to continue for the rest of 2024 and beyond as there should be a rising demand for dialysis services due to an expanding patient pool with end-stage renal diseases. Per a report, the dialysis market is expected to grow more than 5% till 2032. DaVita, being a leader in the market, 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.
The company’s sales from its dialysis services grew 6.2% to $6 billion in the first half of 2024. Apart from 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 during the second quarter. Rising demand, coupled with improving revenues per treatment, should continue to boost top-line growth.
Apart from DaVita, several other industry peers also provide a favorable investment opportunity as the whole Outpatient and Home Healthcare industry has demonstrated strong growth in the past three months as well as in the year-to-date period. Two such peers that have also demonstrated strong performance are Aveanna Healthcare (AVAH - Free Report) and The Pennant Group (PNTG - Free Report) . Shares of AVAH and PNTG have surged 93.1% and 49.5%, respectively, in the past three months.
Image Source: Zacks Investment Research
DaVita is likely to be one of the top gainers among its peers due to its leading position in the U.S. market. The company’s ongoing expansion should help maintain its position going forward. 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 (“IKC”) business, representing $5.4 billion in annualized medical spending. The company also had an additional 15,200 patients in other integrated care arrangements. The expansion in gross and operating margins also bodes well for DVA.
However, ongoing macroeconomic challenges are likely to be headwinds for the company. 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.
Promising Fundamentals for the AVAH Stock
DaVita's strong growth prospect is driven by its favorable Zacks Rank #1 (Strong Buy). DVA also has a promising Zacks Style Score of B. A company with a Zacks Rank #1 or #2, coupled with a Style Score, or VGM Score of A or B, implies that it will outperform the market in the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
DVA stock is also trading above its 50-day and 200-day moving averages, demonstrating strength in the uptrend.
DVA Stock Trades Above 50-Day and 200-Day Average
Image Source: Zacks Investment Research
Investors are quite optimistic about DaVita's patient-centric care approach, which makes the most of its kidney care services platform to provide patients with as many options as possible for models and modalities of care. In the arena of kidney health, value-based partnerships are becoming more and more typical. These partnerships allow nephrologists, physicians and transplant programs to work together more closely, which helps develop a better understanding of each patient's clinical needs. Management expects this to lead to better care coordination and early intervention.
Key Factors Supporting DVA’s Growth
DaVita’s IKC business is an active participant in the Center for Medicare and Medicaid Innovation’s (“CMMI”) Comprehensive Kidney Care Contracting (“CKCC”) model that seeks to manage the care of late-stage CKD and ESKD patients to delay the progression of kidney disease, promote home dialysis and incentivize transplants.
Acquiring dialysis centers and businesses that own and operate dialysis centers as well as other ancillary services is DaVita’s preferred business strategy. Earlier this year, the company extended the pilot phase of a previously announced supply and collaboration agreement with Nuwellis. At the conclusion of the pilot phase (ending Aug. 31, 2024), DaVita might have extended the supply agreement with Nuwellis for continued provision of both inpatient and outpatient ultrafiltration services for up to 10 years.
Apart from the U.S. market, 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. This is expected to help DaVita deliver more efficient patient care. Currently, DaVita is seeking to expand in major European and Asian countries via acquisitions and partnerships.
During the second-quarter earnings call, DVA raised its earnings projections for fiscal 2024. This is likely to have drawn investors’ attention. Adjusted EPS for the full year is now projected to be in the range of $9.25-$10.05, up from the previous band of $9-$9.80. The Zacks Consensus Estimate for 2024 earnings is currently pegged at $9.99 per share, indicating an 18% year-over-year improvement. The estimate improved 3.8% over the past 60 days.
Image Source: Zacks Investment Research
Cheap Valuation Implies DVA Stock’s Growth
The DVA stock is currently trading at a discount when compared to the Medical – Outpatient and Home Healthcare industry. Its forward 12-month P/E of 14.7X is significantly lower than the industry’s 21.5X at the moment. DVA is currently trading 6.6% lower than the high of 15.73X in the past five years.
This is also reflected in its favorable Value score of A, implying the availability of the stock at an attractive valuation even after its significant rally so far this year.
Image Source: Zacks Investment Research
Factor That May Offset the Gains for DaVita
A significant portion of DaVita’s dialysis and related lab service revenues is 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.
Should You Invest in DaVita Right Now?
DaVita represents an attractive opportunity for investors backed by strong fundamentals. Moreover, the cheap valuation of the company offers a significant upside potential going forward. The rising revenues per treatment, along with increasing diagnostic centers, are paving the way for improving the top and bottom-lines in the future. Apart from a favorable Value score, the company’s Growth score of C and Momentum score of D imply a moderate pace for the uptrend.
We expect current shareholders to continue to gain from further upside; new investors are also likely to reap the benefits.
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DaVita Stock Rallies 17% in 3 Months: Is it Still Worth Buying?
Shares of DaVita (DVA - Free Report) have risen 17.1% in the past three months, outperforming the Zacks Medical - Outpatient and Home Healthcare industry’s growth of 13.5% and the broader Zacks Medical sector’s return of 2.5%. DVA stock has risen 54.8% year to date, primarily due to rising demand for its dialysis services.
The uptrend is likely to continue for the rest of 2024 and beyond as there should be a rising demand for dialysis services due to an expanding patient pool with end-stage renal diseases. Per a report, the dialysis market is expected to grow more than 5% till 2032. DaVita, being a leader in the market, 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.
The company’s sales from its dialysis services grew 6.2% to $6 billion in the first half of 2024. Apart from 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 during the second quarter. Rising demand, coupled with improving revenues per treatment, should continue to boost top-line growth.
Apart from DaVita, several other industry peers also provide a favorable investment opportunity as the whole Outpatient and Home Healthcare industry has demonstrated strong growth in the past three months as well as in the year-to-date period. Two such peers that have also demonstrated strong performance are Aveanna Healthcare (AVAH - Free Report) and The Pennant Group (PNTG - Free Report) . Shares of AVAH and PNTG have surged 93.1% and 49.5%, respectively, in the past three months.
Image Source: Zacks Investment Research
DaVita is likely to be one of the top gainers among its peers due to its leading position in the U.S. market. The company’s ongoing expansion should help maintain its position going forward. 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 (“IKC”) business, representing $5.4 billion in annualized medical spending. The company also had an additional 15,200 patients in other integrated care arrangements. The expansion in gross and operating margins also bodes well for DVA.
However, ongoing macroeconomic challenges are likely to be headwinds for the company. 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.
Promising Fundamentals for the AVAH Stock
DaVita's strong growth prospect is driven by its favorable Zacks Rank #1 (Strong Buy). DVA also has a promising Zacks Style Score of B. A company with a Zacks Rank #1 or #2, coupled with a Style Score, or VGM Score of A or B, implies that it will outperform the market in the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
DVA stock is also trading above its 50-day and 200-day moving averages, demonstrating strength in the uptrend.
DVA Stock Trades Above 50-Day and 200-Day Average
Image Source: Zacks Investment Research
Investors are quite optimistic about DaVita's patient-centric care approach, which makes the most of its kidney care services platform to provide patients with as many options as possible for models and modalities of care. In the arena of kidney health, value-based partnerships are becoming more and more typical. These partnerships allow nephrologists, physicians and transplant programs to work together more closely, which helps develop a better understanding of each patient's clinical needs. Management expects this to lead to better care coordination and early intervention.
Key Factors Supporting DVA’s Growth
DaVita’s IKC business is an active participant in the Center for Medicare and Medicaid Innovation’s (“CMMI”) Comprehensive Kidney Care Contracting (“CKCC”) model that seeks to manage the care of late-stage CKD and ESKD patients to delay the progression of kidney disease, promote home dialysis and incentivize transplants.
Acquiring dialysis centers and businesses that own and operate dialysis centers as well as other ancillary services is DaVita’s preferred business strategy. Earlier this year, the company extended the pilot phase of a previously announced supply and collaboration agreement with Nuwellis. At the conclusion of the pilot phase (ending Aug. 31, 2024), DaVita might have extended the supply agreement with Nuwellis for continued provision of both inpatient and outpatient ultrafiltration services for up to 10 years.
Apart from the U.S. market, 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. This is expected to help DaVita deliver more efficient patient care. Currently, DaVita is seeking to expand in major European and Asian countries via acquisitions and partnerships.
During the second-quarter earnings call, DVA raised its earnings projections for fiscal 2024. This is likely to have drawn investors’ attention. Adjusted EPS for the full year is now projected to be in the range of $9.25-$10.05, up from the previous band of $9-$9.80. The Zacks Consensus Estimate for 2024 earnings is currently pegged at $9.99 per share, indicating an 18% year-over-year improvement. The estimate improved 3.8% over the past 60 days.
Image Source: Zacks Investment Research
Cheap Valuation Implies DVA Stock’s Growth
The DVA stock is currently trading at a discount when compared to the Medical – Outpatient and Home Healthcare industry. Its forward 12-month P/E of 14.7X is significantly lower than the industry’s 21.5X at the moment. DVA is currently trading 6.6% lower than the high of 15.73X in the past five years.
This is also reflected in its favorable Value score of A, implying the availability of the stock at an attractive valuation even after its significant rally so far this year.
Image Source: Zacks Investment Research
Factor That May Offset the Gains for DaVita
A significant portion of DaVita’s dialysis and related lab service revenues is 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.
Should You Invest in DaVita Right Now?
DaVita represents an attractive opportunity for investors backed by strong fundamentals. Moreover, the cheap valuation of the company offers a significant upside potential going forward. The rising revenues per treatment, along with increasing diagnostic centers, are paving the way for improving the top and bottom-lines in the future. Apart from a favorable Value score, the company’s Growth score of C and Momentum score of D imply a moderate pace for the uptrend.
We expect current shareholders to continue to gain from further upside; new investors are also likely to reap the benefits.