) boasts a strong top-line growth, strong cash flows, sturdy
balance sheet and rapid domestic and international expansion.
However, increasing expenses, unfavorable shift in payor mix,
headwinds from debt refinancing and ongoing concerns related tothe
health care reform are the downsides. Thus, we retain our Neutral
recommendation on the company.
DaVita reported first-quarter 2012 operating earnings of $1.46
per share, beating the Zacks Consensus Estimate by a penny.
Earnings per share were also substantially higher than the
prior-year quarter earnings of 96 cents.
Acquisition of dialysis centers and businesses that own and
operate dialysis centers, as well as other ancillary services and
strategic alliances have been DaVita's preferred business strategy
The agreement to purchase HealthCare Partners, signed in May
2012, will support and augment the company's primary care and
specialty physician services as well as hospital and other
healthcare services. During the first quarter of 2012, DaVita
acquired 28 centers and opened 13 centers in the U.S., while 4
centers were opened outside the U.S.
DaVita is rapidly expanding its international presence as well.
In April 2012, the company acquired a controlling interest in Lehbi
Care, a Saudi Arabian kidney care company. This was a significant
step forward in DaVita's international expansion strategy, as Saudi
Arabia has substantial demand for dialysis services and offers
strong growth opportunities going ahead.
DaVita also announced a joint venture with
), a China-based biotechnology company, in March 2012, to jointly
invest about $20 million in China. The agreement will be beneficial
for DaVita as the Chinese market will provide it ample scope for
growth. The company will also gain from 3SBio's widespread
marketing network in China.
However, a significant portion of DaVita's dialysis and related
lab services revenues are generated from patients who have
commercial payors as the primary payor. Almost 34% of the company's
revenues from dialysis and related lab services came from such
patients in fiscal 2011 and the first quarter of 2012.
However, the rising unemployment may result in shifting people
from commercial insurance schemes to government schemes due to wide
disparity in payment rates.
Moreover, DaVita has been embroiled in various lawsuits and
investigations, which can be detrimental to its shareholders'
confidence. In July 2012, the company agreed to pay $55 million to
settle a lawsuit accusing it of overusing Epogen, an Anemia drug
used for increasing the red blood cell count in kidney patients.
Apart from the settlement amount, the company will also have to pay
attorney fees, both of which will substantially increase the
DaVita currently carries a Zacks #3 Rank, implying a short-term
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