DaVita Gains 34.5% YTD: What's Driving the Stock?

DaVita DVA witnessed strong momentum year to date. Shares of the company rallied 34.5% compared with 11.2% growth of the industry in the same time frame. The S&P 500 Composite has risen 11.7% during the same period.

With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) company appears to be a solid wealth creator for its investors at the moment.

Denver, CO-headquartered DaVita is a leading provider of dialysis services in the United States to patients suffering from chronic kidney failure, also known as an end-stage renal disease (ESRD). The company operates kidney dialysis centers and provides related medical services, primarily in dialysis centers and in contracted hospitals across the United States. Its services include outpatient dialysis services, hospital inpatient dialysis services and ancillary services such as ESRD laboratory services and disease management services.

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Catalysts Driving Growth

The rally in the company's share price can be attributed to strength in its Dialysis and related lab services. The optimism, led by a solid first-quarter 2024 performance and robust business potential, is expected to contribute further.

DaVita ended the first quarter of 2024 with better-than-expected results. The uptick in the company's overall top-line and bottom-line performances was encouraging. The opening of dialysis centers within the United States and acquiring centers overseas were promising.

DaVita has narrowed its adjusted earnings per share outlook for 2024. The company expects adjusted EPS for 2024 in the range of $9.00-$9.80, which is narrowed from the previous expectations of $8.70-$9.80.

In the first quarter of 2024, DaVita's gross profit rose 21.7% to $991.6 million. The gross margin expanded 394 basis points (bps) to 32.3%. Adjusted operating profit totaled $629.1 million, reflecting a 30.3% uptick from the prior-year quarter. Adjusted operating margin in the first quarter expanded 368 bps to 20.5%. The expansion of both margins bodes well for the stock.

The company's other operations include ancillary services that are primarily aligned with its core business of providing dialysis services to our network of patients. These ancillary services generated revenues of approximately $342 million in the first quarter of 2024, representing approximately 11% of DaVita's consolidated revenues. The company also expects to add additional service offerings to its business and pursue additional strategic initiatives in the future.

DaVita announced that it has agreed to terms on expanding its international operations in Brazil and Colombia, and its entry into Chile and Ecuador. The deal, involving four separate acquisitions from Fresenius Medical Care, is consistent with DaVita's disciplined investment strategy.

Risk Factors

DaVita, in its U.S. dialysis business, faces intense competition from large and medium-sized providers, among others. U.S. regulations require medical directors for each center. As the company and its competitors continue to grow and open new dialysis centers, DaVita may not be able to retain an adequate number of nephrologists to serve as medical directors. DaVita also competes with individual nephrologists who have opened their own dialysis units or facilities.

A significant portion of DaVita's dialysis and related lab services revenues are 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.

A Look at Estimates

DaVita's EPS in 2024 and 2025 is expected to grow 13.6% and 6.9%, to $9.62 and $10.29, on a year-over-year basis, respectively. The Zacks Consensus Estimate for EPS has increased 39 cents for 2024 and 28 cents for 2025 in the past 30 days.

Revenues for 2024 and 2025 are anticipated to rise 4.9% and 4.3%, to $12.74 billion and $13.29 billion, respectively, on a year-over-year basis.       

Other Stocks to Consider

Some other top-ranked stocks in the broader medical space that have announced quarterly results are Align Technology, Inc. ALGN, Ecolab ECL and Boston Scientific Corporation BSX.

Align Technology, carrying a Zacks Rank of 2, reported first-quarter 2024 adjusted EPS of $2.14, beating the Zacks Consensus Estimate by 8.1%. Revenues of $997.4 million outpaced the consensus mark by 2.6%.

Align Technology has a long-term estimated growth rate of 6.9%. ALGN's earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 5.9%.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.3%. ECL's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 1.7%.

Ecolab's shares have rallied 33.8% against the industry's 9.3% decline in the past year.

Boston Scientific reported first-quarter 2024 adjusted EPS of 56 cents, beating the Zacks Consensus Estimate by 9.8%. Revenues of $3.86 billion surpassed the Zacks Consensus Estimate by 4.9%. It currently carries a Zacks Rank #2.

Boston Scientific has a long-term estimated growth rate of 12.5%. BSX's earnings surpassed estimates in all the trailing four quarters, the average surprise being 7.5%.

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