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DaVita Divests DMG to Optum, Boosts Kidney Care Services

Zacks Equity Research

DaVita Inc.’s DVA Medical Group unit has been sold to Optum for $4.3 billion. This is expected to improve Davita’s major Kidney Care business, fortifying its foothold in the global renal care market.

Following the announcement, shares of DaVita rose 2% to close at $51.27 on Jun 19.

More on the Acquisition

The divestment, announced in late 2017, was subjected to regulatory approval and other customary closing conditions. Also, the results of DMG’s business operations have been reported as discontinued.

Notably, DaVita Medical Group (“DMG”) has now become part of OptumCare — a sub-segment of Optum — the acquiring company’s health services segment. The combination aims to improve care quality and patient satisfaction through ambulatory care delivery systems enabled by information technology and supportive clinical services.

Resultantly, DaVita will continue to own and operate its U.S. and international Kidney Care businesses.

How Does DaVita Stand to Gain?

Completion of the DMG divestment will now enable DaVita to focus on its Kidney Care wing, a significant contributor to the company’s top line. In fact, in the last reported quarter, the segment generated $382 million of revenues.

As an operating division of DaVita, DaVita Kidney Care focuses on setting worldwide standards for clinical, social and operational practices in kidney care. The latest development will boost the segment’s key services like in-center hemodialysis, home hemodialysis, peritoneal dialysis, kidney transplant, urology, diabetology and vascular access surgery.

Notably, the company has focused on expanding its Kidney Care business through continuous acquisition of dialysis centers and businesses. In fact, in the recent past, the company opened a 150,000 square-foot campus for DaVita Labs in DeLand, FL, with a view to serve DaVita dialysis clinics and their patients, marking its only laboratory in the United States. (Read More: DaVita Kidney Care Opens 150000-Square-Foot Campus in DeLand)

Market Prospects

Market Research Future opines that the global renal disease care market will reach a worth of $93.38 billion by 2023, at a CAGR of 6.3%.

The rising prevalence of kidney diseases, diabetes, hypertension and rapid growth in the geriatric population have led to growth in the global renal disease market in recent years.

Price Performance

We believe that strategic divestments and lucrative market prospects will boost the Zacks Rank #3 (Hold) company’s shares, which slipped 28.9% compared with the industry’s 19.5% decline in a year’s time. The current level also compares unfavorably with the S&P 500 index’s 4.7% rally.

Key Picks

A few better-ranked stocks in the broader medical space are DENTSPLY SIRONA XRAY, Masimo Corporation MASI ad CONMED Corporation CNMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DENTSPLY’s long-term earnings growth rate is expected at 11.5%.

Masimo’s long-term earnings growth rate is projected at 16.1%.

CONMED’s long-term earnings growth rate is estimated at 13.3%.

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