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Here's Why You Should Retain DaVita (DVA) Stock for Now

Zacks Equity Research

DaVita Inc. DVA is gaining prominence in the MedTech space, courtesy of persistent efforts to upgrade services, global expansion initiatives and acquisitions. However, integration risks remain a concern.

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

Price Performance

Shares of DaVita have gained 5.3%, compared with the industry’s growth of 6.5% on a year-to-date basis. Meanwhile, the S&P 500 Index rallied 14.2% in the same timeframe.



What’s Deterring the Stock?

With respect to business strategy, DaVita has been growing through acquisitions of dialysis centers and other businesses. The company is also gaining from entry into joint ventures and new business models. This in turn can adversely affect operational performance, debt-to-capital ratio, capital expenditures and other aspects of business.

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 and acquisitions of dialysis centers.

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

In the last reported quarter, the company generated $1 million of international operating income and continues to expect positive adjusted operating income for the rest of 2019.

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

Moreover, DaVita issued an impressive guidance for 2019. The company now expects adjusted operating income between $1.64 billion and $1.70 billion. This reflects a significant increase from the earlier range of $1.54 billion to $1.64 billion.

Which Way Are Estimates Headed?

For 2019, the Zacks Consensus Estimate for revenues is pegged at $11.35 billion, suggesting a decline of 0.5% year over year. For adjusted earnings, the same stands at $4.78, indicating an improvement of 33.9% year over year.

Key Picks

Some better-ranked stocks from the broader medical space are Nissan Chemical Corporation NNCHY, Fresenius Medical Care AG & Co. KGaA FMS and McKesson Corporation MCK, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nissan Chemical has a long-term earnings growth rate of 10%.

Fresenius Medical has a long-term earnings growth rate of 5.9%.

McKesson has a long-term earnings growth rate of 6.9%.

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