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Here's Why You Should Hold on to DaVita (DVA) Stock Now

Zacks Equity Research

DaVita Inc. DVA is gaining prominence in the MedTech space, courtesy of its incessant efforts to upgrade services, global expansion initiatives and acquisitions. The company has a market capitalization of approximately $9.17 billion.

The stock currently carries a Zacks Rank #3 (Hold).

Price Performance

Shares of DaVita have gained 7.1%, outperforming the industry’s growth of 5.3% on a year-to-date basis. However, the stock fell behind the S&P 500 Index’s 14.3% rally.

What’s Deterring the Stock?

DaVita has been witnessing rising expenses of late, which in turn has put pressure on margins. In 2018, expenses increased nearly 9% from that of 2017, which resulted in the company suffering higher operating loss. Further, additional expenses incurred in the fourth quarter of 2018, owing to advocacy costs, weighed on the company’s top line.

Moreover, adoption of an executive retirement policy can lead to additional stock-based compensation expenses for the company.

This apart, the company’s decision to divest DMG segment is anticipated to lower cash flows. Management has not given any assurance with regard to generation of sufficient cash flows in the near term required to finance debts or to fund other liquidity needs.

Factors to Boost DaVita

DaVita has remained committed toward expansion related to international markets. In the last few years, the company has strengthened position in the emerging and developing markets of Brazil, China, Colombia, Germany, India, Malaysia, the Netherlands, Poland, Portugal and Saudi Arabia through strategic alliances as well as acquisitions of dialysis centers.

These strategic efforts are anticipated to help DaVita deliver more efficient patient care. Currently, DaVita is pursuing expansion in major European and Asian countries via acquisitions and partnerships.

In the United States, DaVita has witnessed strong demand of dialysis services in recent times. Prudent acquisitions of dialysis centers and businesses, which own and operate dialysis centers as well as other ancillary services, is the company’s key business strategy. These initiatives have aided the company’s top line to improve significantly over a considerable period of time.

In the fourth quarter of 2018, the company provided dialysis services at 2,905 outpatient dialysis centers, of which 2,664 centers were located in the United States and 241 in nine countries. Notably, 2018 U.S. dialysis and related lab services’ revenues grossed $10.66 billion.

Which Way Are Estimates Headed?

For 2019, the Zacks Consensus Estimate for revenues is pegged at $11.50 billion, up 0.8% year over year. For adjusted earnings, the same is pinned at $4.43, up 24.1% year over year.

DaVita Inc. Price and Consensus


DaVita Inc. Price and Consensus | DaVita Inc. Quote

Key Picks

Some better-ranked stocks from the same space are Addus HomeCare Corporation ADUS, Amedisys, Inc. AMED and Chemed Corporation CHE, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Addus HomeCare has a long-term earnings growth rate of 15.5%.

Amedisys has a long-term earnings growth rate of 19.7%.

Chemed Corporation has a long-term earnings growth rate 8.8%.

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