DaVita Inc (DVA, Financial) experienced a significant daily gain of 7.14% on August 5, 2023, with an Earnings Per Share (EPS) (EPS) of $5.03. But is the company's stock modestly undervalued as it seems? This article delves into the intrinsic value of DaVita (DVA), providing a comprehensive financial analysis to answer this intriguing question. Read on to discover whether this healthcare giant represents a hidden investment opportunity.
Company Overview
DaVita Inc, the largest provider of dialysis services in the United States, commands a market share exceeding 35% in terms of both patients and clinics. The company operates over 3,100 facilities worldwide, primarily in the U.S., treating over 240,000 patients annually. Despite the dominance of government payers in U.S. dialysis reimbursement, commercial insurers account for nearly all of DaVita's profits in the U.S. dialysis business.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $108.81 per share, DaVita stock appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
The financial strength of a company is a critical factor to consider before investing in its stock. Investing in companies with poor financial strength poses a higher risk of permanent loss. DaVita's cash-to-debt ratio of 0.03 is below 93.38% of companies in the Healthcare Providers & Services industry, indicating poor financial strength. The overall financial strength of DaVita is rated 3 out of 10 by GuruFocus.
Profitability and Growth
Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over the long term. DaVita, with high profit margins and strong profitability, has been profitable for 10 out of the past 10 years. The company's operating margin of 11.03% is better than 75.38% of companies in the same industry.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth rate of DaVita is 17.8%, ranking better than 71.28% of companies in the Healthcare Providers & Services industry. Its 3-year average EBITDA growth rate is 13.5%, outperforming 56.41% of industry counterparts.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. DaVita's ROIC of 6.38 over the past 12 months is higher than its WACC of 5.24, indicating value creation for shareholders.
Conclusion
In summary, DaVita (DVA, Financial) appears to be modestly undervalued. Despite its poor financial condition, the company boasts strong profitability and growth that outperforms 56.41% of companies in the Healthcare Providers & Services industry. For more detailed financial information about DaVita stock, check out its 30-Year Financials here.
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