We have retained our Neutral recommendation on
DaVita Healthcare Partners Inc.
) following impressive second quarter results. This dialysis
services provider currently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
DaVita's operating earnings for the second quarter of 2013 came
in at $1.84 per share, lagging the Zacks Consensus Estimate of
$1.86 by 11%. However, results surpassed the year-ago quarter's
earnings of $1.53 by 20.3%. Top line also improved substantially
and aided the earnings improvement.
DaVita has been acquiring dialysis centers and businesses that
own dialysis centers to enhance its services and expand clientele
base. The company ended up acquiring 11 centers in the U.S. and
13 centers outside the U.S. in the first half of 2013. More
acquisitions and alliances are expected in the future since the
uncertainties related to the bundling rule and the capital
markets have eased.
Moreover, DaVita's national and global expansion initiatives
since the beginning of 2013 have been remarkable. Worth
mentioning in this regard are the acquisition of dialysis centers
- 5 in Portugal and 4 in Poland, majority stake in Esensa S.A.S.,
alliance with Cureatr and Arizona Integrated Physicians.
Additionally, the company's strong operating cash flow is helping
it meet its capital expenditure needs and spend on acquisitions.
On the tepid side, Davita's debt refinancing activities elevates
its debt levels significantly. Further, the company's
disengagement in share repurchases since Jul 2011 has marred
investor sentiment to some extent. Although the company entered
into some interest rate hedging agreements, in Mar 2013, any
increase in interest obligations may further increase the
company's interest expense adversely affecting the cash flow and
its ability to service its debt.
Moreover, the implementation of the healthcare reform
legislations from 2014 could adversely affect DaVita's earnings.
This is because one of the provisions of the reform mandates the
establishment of health insurance exchanges which might reduce
the number of policyholders opting for commercial insurance.
Revenues, earnings and cash flows might also be affected
adversely if DaVita fails to comply with the quality measures
adopted by Centre for Medicare & Medicaid Services' proposed
2014 ESRD PPS rule that will come into effect in 2016.
Other Stocks to Consider
Other healthcare companies that are worth considering are
LHC Group Inc.
) carry a favorable Zacks Rank #1 (Strong Buy) while
) carry a Zacks Rank #2 (Buy).
AMSURG CORP (AMSG): Free Stock Analysis
DAVITA HEALTHCR (DVA): Free Stock Analysis
LCA-VISION INC (LCAV): Free Stock Analysis
LHC GROUP LLC (LHCG): Free Stock Analysis
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