Jefferies Comments On DaVita CMS

According to Jefferies, DaVita's DVA CMS provides relief with elimination of ESRD transition adjustment. Jefferies reported that it views the elimination of the -3.1% transition budget neutrality adjustment under the Medicare ESRD bundled payment system as a positive for dialysis providers, such as DVA, but believes the move was largely anticipated by most investors and already priced into shares as evidenced by the muted reaction in the stock. “We are raising our PT to $95 (from $81), but the stock's valuation keeps us at a Hold. Our revised PT of $95 (up from $81) is based on our 5-year DCF analysis that incorporates a WACC of 7.4% and a terminal EBITDA-MI multiple of 8.5x (in-line with historical trading range). Risks: Bundled payment uncertainties and potential commercial pricing pressure.” DaVita closed yesterday at $86.53.