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DaVita DVA witnessed strong momentum year to date, with its shares up 29.8% in the same time frame compared with the industry growth of 8%. The S&P 500 Composite has risen 17% in the year-to-date period.

DaVita, carrying a Zacks Rank #3 (Hold) at present, is witnessing an upward trend in its stock price, prompted by its business model. The optimism, led by a solid first-quarter 2024 performance and the acquisition of dialysis centers, is expected to contribute further.

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 end-stage renal disease (ESRD). The company operates kidney dialysis centers and provides related medical services, primarily in dialysis centers and contracted hospitals across the country. 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 are expected to contribute further.

Investors have high optimism about DaVita's patient-centric care model, which leverages its platform of kidney care services to maximize patient choice in terms of models and modalities of care. Value-based arrangements are becoming more and more common in the field of kidney health. Due to these arrangements, nephrologists, providers, and transplant programs can collaborate to a much greater extent, which leads to a more comprehensive understanding of each patient's clinical needs. Management expects that this will result in early intervention and improved care coordination.

DaVita's strong 2024 first-quarter performance raises optimism. Both the company's top and bottom lines exhibited improvement overall. Strength in both dialysis patient service and Other revenues during the period was also seen. The expansion of both margins bodes well for the company.

Acquiring dialysis centers and businesses that own and operate dialysis centers as well as other ancillary services is DaVita’s preferred business strategy. Such strategies have boosted the company’s top line to a large extent, raising investors’ optimism.

Earlier this year, DVA extended the pilot phase of a previously announced supply and collaboration agreement with Nuwellis until Aug 31, 2024. At the conclusion of the pilot phase, DaVita may extend the supply agreement with Nuwellis for continued provision of both inpatient and outpatient ultrafiltration services for up to 10 years.

As of Mar 31, 2024, DaVita provided dialysis services to around 258,600 patients at 3,092 outpatient dialysis centers, of which 2,665 were in the United States and 427 were located across 12 other countries. In the first quarter of 2024, the company acquired and opened a total of 11 dialysis centers in the United States. It also acquired 67 dialysis centers and opened two dialysis centers outside the country during the same period.

DaVita is steadily expanding in the international markets. In March 2024, the company announced that it had agreed to terms on the expansion of its international operations in Brazil and Colombia and its entry into Chile and Ecuador.

Through strategic collaborations and dialysis center acquisitions, the company has solidified its position in the last several years in the expanding and developing markets of China, Germany, India, Malaysia, the Netherlands, Poland, Portugal, and Saudi Arabia. These should enable DaVita to provide patient care more effectively. Through partnerships and acquisitions, the company is currently looking to expand into important European and Asian countries.

Risk Factors

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.

Key Picks

Some better-ranked stocks in the broader medical space that have announced quarterly results are Elevance Health, Inc. ELV, Stryker Corporation SYK and Universal Health Services UHS.

Elevance Health, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 12.2%. ELV’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 2.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health’s shares have rallied 22.1% compared with the industry’s 5.5% rise in the past year.

Stryker, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 10.6%. SYK’s earnings surpassed estimates in each of the trailing four quarters, with the average being 4.9%.

Stryker has gained 13.2% against the industry’s 3.1% decline in the past year.

Universal Health Services has an Earnings ESP of +2.91% and a Zacks Rank of 2, at present. UHS has an estimated earnings growth rate of 30.5% for 2024.

UHS’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.12%.

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