DaVita (DVA) Ties Up with Cigna Arm, Expands in Los Angeles
Denver, CO-based DaVita HealthCare Partners Inc. DVA, a leading provider of dialysis services, announced that HealthCare Partners, a unit within its medical group, has entered into a strategic partnership with Cigna, a global health insurance service company that offers health, dental, supplemental insurance and Medicare plans to individuals, families and businesses.
Per the terms of the agreement, the duo would offer HMO health plans (Health Maintenance Organization) and integrated health care options to employers in and around Los Angeles by Apr 1, 2017. Per management, the collaboration aims to sustain affordability and value for both employees and employers.
Notably, HealthCare Partners and Cigna already have a solid track record of working together in the Los Angeles area through Cigna Collaborative Care, which was launched in Apr 2013. Furthermore, Cigna had initiated a similar collaborative agreement with HealthCare Partners in Las Vegas in Oct 2012.
Stock Performance
The price performance of DaVita has been a tad bit disappointing of late. Over the last six months, the stock added 5.2%, lower than the Zacks classified Medical - Outpatient and Home Healthcare sub-industry’s gain of 14.7%. However, the current return of the stock is roughly in line with the S&P 500’s return of 5.5% over the same time frame.
Meanwhile, the company’s recent earnings estimates have been mixed. The current quarter has seen one estimate go higher in the past 30 days compared to one lower, while full-year estimates saw three upward and one downward movement over the same time period.
This had a nominal impact on the consensus estimate though, as the current quarter consensus estimate witnessed no changes over the past two months, while the full year estimate has inched lower by 0.3%.
This somewhat mixed trend justifies DaVita’s Zacks Rank #3 (Hold).
Our Take
DaVita’s constant efforts to upgrade its services, global expansion initiatives and active acquisitions remain impressive .The latest development closely follows DaVita’s recent acquisition of WellHealth Quality Care, Nevada's ‘first and only’ commercial accountable care network. Although the company did not disclose the financial terms of the deal, it is expected to close by the first half of 2017.
DaVita HealthCare Partners Inc. Price
DaVita HealthCare Partners Inc. Price | DaVita HealthCare Partners Inc. Quote
Furthermore, a compelling inorganic growth story supported by its strong financial position is a positive for the stock. However, DaVita remains challenged by high debt levels, adverse effects of healthcare reforms, rise in Medicare costs and an increase in Medicare Advantage (MA) beneficiaries. Also, MA rate cuts are likely to hurt the bottom line in the near future.
Stocks to Consider
Better-ranked stocks in the broader medical sector include Glaukos Corporation GKOS, Avinger, Inc. AVGR and Fluidigm Corporation FLDM. Notably, Glaukos and Fluidigm sport a Zacks Rank #1 (Strong Buy) while Avinger carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Glaukos Corporation has a long-term expected earnings growth rate of approximately 25%. Notably, the stock represents an impressive one-year return of 176.2%.
Avinger projects sales growth of 30.7% for the current year. Additionally, the company posted a positive earnings surprise of 27% in the last quarter.
Fluidigm Corporation has a long-term expected earnings growth rate of 25%. The stock has added 8.4% over the last one year.
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