DaVita Soars to New 52-Week High - Analyst Blog

Riding on a steady growth momentum, shares of DaVita HealthCare Partners Inc. DVA hit new 52-week high of $70.14 on Mar 19. This healthcare service provider has witnessed a jump of about 10.3% since the beginning of 2014.

Moreover, the encouraging momentum of this Zacks Rank #3 (Hold) stock is fuelled by strategic initiatives and improved inorganic growth coupled with a sturdy liquidity and competitive position. Yesterday's closing price represents a robust 6-month return of about 138.7%, against a mere 9.5% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 1,463.9K.

Earnings Review

On Feb 11, DaVita reported fourth-quarter 2013 operating earnings per share of 99 cents, topping the Zacks Consensus Estimate by a penny and the year-ago equivalent of 76 cents. With this, the company delivered a positive earnings surprise of 1% during the quarter.

Higher volumes came from increased dialysis and non-acquired treatments, resulting in strong performance at the Dialysis and Related Lab Services and HealthCare Partners HCP segments. Consequently, total revenue in the quarter boosted 23.6% over the prior-year period. Despite higher patient care and operating costs, operating income also rose about 18.6% during the reported quarter, reflecting robust growth in operating cash flow and a strong cash position.

Rationale

Simultaneously with the impressive fourth-quarter results, DaVita's improved outlook for the Kidney Care segment and overall operating income reflect increased center activity and volumes, overall signaling margin expansion and stronger operating leverage.

While DaVita's core growth strategy of global expansion through mergers and acquisitions have remained strong and productive in the past years, we expect more acquisitions and alliances in the future given the ease in the uncertainties related to the bundling rule and the capital markets. Expansion into emerging and developing markets also augur long-term growth and competitive strength.

We believe the upcoming quarters should benefit from DaVita's prudent operating and capital actions should negate the regulatory challenges and create scope for healthy capital deployment, as reflected in the market's positive reaction.

Some better-ranked financial and healthcare insurance stocks that warrant a look are Chemed Corp. CHE with a Zacks Rank #1 (Strong Buy), along with Amerisafe Inc. AMSF and Unum Group UNM, both bearing a Zacks Rank #2 (Buy).