Denver, Colorado-based DaVita Inc. (DVA) provides kidney dialysis services for patients suffering from chronic kidney failure. The company operates various kidney dialysis centers and offers related lab services in outpatient dialysis centers. In addition, it provides outpatient, hospital inpatient, and home-based hemodialysis services and disease management services.

Warren Buffett’s Berkshire Hathaway (BRK.B) owns nearly 36 million shares of DVA for a market value of $3 billion. This represents about 1% of Berkshire’s overall investment portfolio.

DVA reported impressive financial results. The company’s revenues grew marginally to $2.81 billion in the fiscal 2022 second quarter ended June 30, 2022. Its other revenues came in at $116.66 million, up 18.4% year-over-year. The second-quarter revenue improved due to seasonal improvement driven by patients’ co-insurance and deductibles and the continued shift to Medicare Advantage plans.

As of June 30, the company had provided dialysis services to approximately 243,700 patients at 3,159 outpatient dialysis centers, of which 2,810 were in the United States, and 349 were based in 11 countries outside of the United States. In addition, it had nearly 44,000 patients in risk-based integrated care arrangements representing more than $3.70 billion in annualized medical spending.

On May 26, DVA and Medtronic plc (MDT) announced a new, independent kidney care-focused medical device company to enhance the patient treatment experience and improve overall outcomes.

By leveraging DVA’s deep expertise as a comprehensive kidney care provider and MDT’s capabilities as a healthcare technology leader, NewCo is well-positioned to advance the development of differentiated therapies for patients with kidney failure. The newly formed company is expected to boost the company’s growth and revenue streams.

DVA’s shares have gained 6.3% over the past month to close the last trading session at $93.21.

Here is what could influence DVA’s performance in the upcoming months:

Favorable Analyst Estimates

Analysts expect DVA’s revenue for the fiscal 2023 first quarter (ending March 2023) to come in at $2.91 billion, representing a rise of 3.3% from the same period in 2022. The $1.99 consensus EPS estimate for the same quarter indicates a 23.4% year-over-year increase.

DVA’s revenue for the current year (ending December 2022) is expected to grow 1.1% year-over-year. Also, analysts expect the company’s revenue and EPS for the next year to grow 4% and 26.5% year-over-year, respectively. The company has surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.

High Profitability

DVA’s trailing-12-month EBIT margin of 13.8% is 17,051.4% higher than the 0.08% industry average. Its trailing-12-month EBITDA margin of 19.8% is 500% higher than the 3.29% industry average. Likewise, the stock’s trailing-12-month net income margin of 7.17% is higher than the industry average of negative 2.2%.

Furthermore, DVA’s trailing-12-month ROCE, ROTC, and ROTA of 88.62%, 6.83%, and 4.88% are higher than the industry averages of negative 38.42%, 21.26%, and 29.59%, respectively.

Discounted Valuation

In terms of forward non-GAAP P/E, DVA’s 11.99x is 40.4% lower than the 20.13x industry average. The stock’s 9.69x forward EV/EBITDA is 30.8% lower than the 14.01x industry average. Its forward EV/EBIT multiple of 14.00 compares with the industry average of 17.48x.

In addition, DVA’s 0.72x forward Price/Sales is 85.5% lower than the 4.99x industry average. Its forward Price/Cash Flow multiple of 6.05 compares with the industry average of 17.02x.

POWR Ratings Show Promise

DVA has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

DVA has a B grade for Quality, consistent with its higher-than-industry profitability. In addition, the stock has a B grade for Value, in sync with its lower-than-industry valuation multiples.

DVA is ranked #20 out of 83 stocks in the Medical-Services industry.

Beyond what I have stated above, we have also given DVA grades for Sentiment, Momentum, Growth, and Stability. Get access to all the DVA ratings here.

Bottom Line

DVA is well-positioned for immense growth in the coming quarters, supported by strength in DaVita Kidney Care. Moreover, the company is steadily expanding its footprint in international markets.

Given the company’s strong financials, low valuation, high profitability, and solid revenue and earnings growth estimates, we think the stock still has plenty of upside left.

How Does DaVita Inc. (DVA) Stack Up Against its Peers?

DVA has an overall POWR Rating of B. One could also check out these other stocks within the Medical-Services industry with an A (Strong Buy) rating: McKesson Corp. (MCK), Cardinal Health, Inc. (CAH), and AmerisourceBergen Corp. (ABC).

DVA shares were unchanged in premarket trading Monday. Year-to-date, DVA has declined -18.06%, versus a -11.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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