We have reiterated our Neutral recommendation on
DaVita HealthCare Partners Inc.
) based on the various positives, which offset the negative
factors such as higher expenses and high dependence on commercial
payors and government reimbursements.
DaVita has been generating strong operating cash flow accruing
from improved earnings, robust cash collections and the timing of
payments for working capital expenditures. Operating cash flow
increased at a 3-year CAGR (2009-2012) of 18%. Similar growth is
expected in the future as well, as reflected by the operating
cash flow guidance of $1.35-$1.50 billion for 2013.
Moreover, DaVita is slowly expanding in the domestic and
international markets through acquisitions and alliances. Earlier
this month, this Zacks Rank #3 (Hold) stock entered Columbia by
acquiring a majority stake in Esensa S.A.S.
In Jan 2013, DaVita acquired 5 dialysis centers in Portugal
and 4 in Poland from rival Fresenius Medical Care. In the same
month, the company also entered Taiwan through a joint venture
with Riches Healthcare to form DaVita Taiwan. Further, in the
first quarter of 2013, DaVita acquired 8 centers and opened 27
centers in the U.S. and opened 1 center outside the U.S.
However, DaVita's dependence on commercial payors and
government reimbursements is a cause of concern. Moreover, the
company has a significant amount of debt burden. In fact, the
company has not repurchased any shares since Jul 2011, in order
to conserve cash for acquisitions amid the volatile debt
Other Stock to Consider
While we have a cautious stance on DaVita, other stocks in the
medical sector worth considering are
Addus HomeCare Corp.
) - Zacks Rank #1 (Strong Buy),
) - Zacks Rank #2 (Buy), and
) - Zacks Rank #2 (Buy).
ADDUS HOMECARE (ADUS): Free Stock Analysis
DAVITA INC (DVA): Free Stock Analysis Report
HEALTHSOUTH CP (HLS): Free Stock Analysis
LCA-VISION INC (LCAV): Free Stock Analysis
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