Can DaVita Stock Continue Its Bull Run After Doubling in a Year?
Shares of DaVita DVA have risen 115.5% in the past year, outperforming the Zacks Medical - Outpatient and Home Healthcare industry’s growth of 37.8% and the broader Zacks Medical sector’s return of 12.3%. The strong bull run in the DVA stock was primarily due to rising demand for its dialysis services, following the disruption of demand amid COVID-19.
The upward trend is expected to persist through the remainder of 2024 and beyond, driven by increasing demand for dialysis services due to a growing number of patients with end-stage renal diseases. According to a report, the dialysis market is projected to expand more than 5% until 2032. As a market leader, DaVita is poised to benefit from this growth. In the second quarter, daily U.S. dialysis treatments rose 1.1% sequentially, indicating rising demand.
In the first half of 2024, the company's dialysis services sales increased 6.2%, reaching $6 billion. Besides the rising demand, DaVita has also been enhancing its revenue per treatment, which improved 4.3% in the first half of 2024 and grew 1.5% sequentially in the second quarter is expected to continue driving the top line.
Apart from DaVita, several other industry peers also provide a favorable investment opportunity. The whole Outpatient and Home Healthcare industry has demonstrated strong growth in the past three months and in the year-to-date period. Two such peers that have also demonstrated strong performance are Aveanna Healthcare AVAH and The Pennant Group PNTG. Shares of AVAH and PNTG have surged 286.1% and 212.8%, respectively, in the past year.
One-Year Performance
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DaVita is experiencing significant growth, driven by its patient-centric care approach, leveraging its kidney care services platform to offer a wide range of treatment models and modalities. The increasing prevalence of value-based partnerships in kidney health enables nephrologists, physicians and transplant programs to collaborate more effectively, facilitating better understanding of individual patient needs, improved care coordination and early interventions.
A key element of DaVita’s growth strategy is the acquisition of dialysis centers and related businesses, as evident from the recent extension of its pilot phase for a supply and collaboration agreement with Nuwellis. Upon completion of this phase, which ended on Aug. 31, 2024, DaVita might have extended the agreement for the ongoing provision of inpatient and outpatient ultrafiltration services for up to 10 years.
The company’s global market share is also on the rise, with its recent agreements to expand operations into Brazil, Colombia, Chile and Ecuador.
DaVita’s second-quarter results exceeded expectations, showcasing a positive trend in both revenue streams and patient services. The sequential increase in daily dialysis treatments in the United States and the opening of new centers, along with acquisitions overseas, indicate a strong growth trajectory.
Furthermore, DaVita has raised its earnings projections for fiscal 2024. It now expects adjusted EPS to be in the range of $9.25-$10.05, up from the prior range of $9-$9.80. This is likely to attract further interest from investors.
The Zacks Consensus Estimates for 2024 and 2025 earnings has improved 0.9% and 1.9%, respectively, over the past 60 days.
Improving Earnings Estimates
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Promising Fundamentals for the DVA Stock
DaVita's strong growth prospect is driven by its favorable Zacks Rank #1 (Strong Buy). DVA also has a promising Zacks Style Score of A. The combination of a Zacks Rank #1 or #2, and a Style Score, or VGM Score of A or B, implies that a company may outperform the market in the next one to three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
DVA stock is also trading above its 50-day and 200-day moving averages, demonstrating strength in the uptrend.
DVA Stock Trades Above 50-Day and 200-Day Average
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Investors are highly optimistic about DaVita's patient-focused care strategy, which leverages its comprehensive kidney care services platform to offer patients a wide range of care models and modalities. In the field of kidney health, value-based partnerships are increasingly common. These collaborations enable nephrologists, physicians and transplant programs to work closely, fostering a deeper understanding of each patient's clinical needs. This is expected to result in improved care coordination and earlier interventions.
Factors Likely to Drive Long-Term Growth
Several factors are poised to drive long-term growth for DaVita stock. The company’s involvement in the Comprehensive Kidney Care Contracting model by the Center for Medicare and Medicaid Innovation is expected to help in caring for late-stage CKD and ESKD patients. This initiative focuses on delaying disease progression, promoting home dialysis and incentivizing transplants, which could lead to better patient outcomes and cost savings.
Additionally, DaVita's strategy of acquiring dialysis centers and related businesses helps expand its footprint and service offerings. The extension of the supply and collaboration agreement with Nuwellis for ultrafiltration services exemplifies this approach, potentially enhancing service quality and patient care over the next decade.
Moreover, DaVita's growth in international markets, particularly in emerging and developing countries like Brazil, China and India, through strategic alliances and acquisitions, positions the company to tap into new patient populations and deliver more efficient care. This global expansion strategy is expected to continue, with plans to enter major European and Asian markets.
Furthermore, the upward revision of DaVita's earnings projections for fiscal 2024 has likely attracted investor interest. The adjusted EPS guidance of $9.25-$10.05, up from $9-$9.80, and the Zacks Consensus Estimate of $9.99 per share, reflecting an 18% year-over-year improvement, indicate strong financial performance and growth. These factors contribute to a robust outlook for DaVita, driven by strategic initiatives, market expansion and improved financial performance.
Earnings Growth Expectations
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Cheap Valuation Implies Attractive Prospect for DVA
The DVA stock is currently trading at a discount when compared to the Medical – Outpatient and Home Healthcare industry. Its forward 12-month P/E of 14.8X is significantly lower than the industry’s 21.4X at the moment. DVA is currently trading 5.9% lower than the high of 15.73X in the past five years.
This is also reflected in its favorable Value score of A, implying the availability of the stock at an attractive valuation even after its significant rally in the past year.
Five-Year P/E F12M Trend
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Factor That May Offset the Gains for DaVita
A significant portion of DaVita’s dialysis and related lab service revenues is generated from patients who have commercial payers as the primary payers. The payments received from commercial payers are the primary generators of profit. However, there remains a risk of people shifting from commercial insurance schemes to government schemes due to the wide disparity in payment rates in case of a rise in unemployment.
Will the Uptrend Continue for DaVita Right Now?
DaVita represents an attractive opportunity for investors backed by strong fundamentals. Moreover, the cheap valuation of the company offers a significant upside potential going forward. The rising revenues per treatment, along with increasing diagnostic centers, are paving the way for improving the top and bottom lines in the future. Apart from a favorable Value score, the company’s Growth score of B and Momentum score of D imply a moderate pace for the uptrend.
We expect current shareholders to continue to gain from any further upside; new investors are also likely to reap the benefits.
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DaVita Inc. (DVA) : Free Stock Analysis Report
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