Why Baird Is Upgrading DaVita Healthcare

In a report published Monday, Baird analysts upgraded the rating on DaVita HealthCare Partners Inc DVA, while raising the price target from $75 to $95.

In the report Baird mentions four reasons for the upgrade:

1. We can no longer ignore the multi-year tailwinds forming around emerging ESA therapies
2. Headwinds to OI growth should wane
3. Capital deployment could be a major upside risk factor (DVA has ~$1.6B in cash)
4. We'd rather be long in front of the capital markets day

The analysts commented, "With emerging ESA therapies and biosimilars coming to market over the next 2-3 years, we cannot ignore the powerful thesis tethered to possible declining cost/tx. Similar to the 2011 "bundle" thesis, we think most investors won't accept the upside potential, until it manifests into numbers."

"HCP carries the potential to be a more significant earnings growth driver in 2017 and beyond," the analysts said, while adding, "We figure EPO represents at least 15% of DVA's cost/tx, or over $800m in annual spend. Our industry sources all strongly believe DVA has some "price check" within its Amgen, Inc. AMGN contract."