DaVita Inc (DVA, Financial) recorded a daily gain of 7.14% with an Earnings Per Share (EPS) of 5.03 as of August 06, 2023. These figures raise a pertinent question: Is DaVita (DVA) modestly undervalued? This article aims to provide a detailed valuation analysis to answer this question. We encourage readers to delve into the following sections to gain a comprehensive understanding of DaVita's valuation.
An Introduction to DaVita Inc (DVA, Financial)
As the largest provider of dialysis services in the United States, DaVita boasts a market share that surpasses 35% in terms of both patients and clinics. The firm operates over 3,100 facilities worldwide, mostly in the U.S, treating over 240,000 patients globally each year. DaVita's revenue predominantly comes from government payers, with approximately 69% of U.S. sales at government reimbursement rates. Commercial insurers, despite representing only about 10% of U.S. patients treated, generate nearly all of DaVita's profits in the U.S. dialysis business.
Understanding the GF Value of DaVita (DVA, Financial)
The GF Value is an exclusive measure of a stock's intrinsic value. The GF Value Line, displayed on our summary page, provides an overview of the fair value at which the stock should ideally be traded. This value is computed based on three key factors:
- Historical trading multiples of the stock.
- A GuruFocus adjustment factor based on the company's past performance and growth.
- Future estimates of the business performance.
DaVita's stock seems modestly undervalued according to the GF Value calculation. At its current price of $108.81 per share, DaVita has a market cap of $9.9 billion, making the stock appear modestly undervalued. If a stock price is significantly above the GF Value Line, it is considered 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.
Given that DaVita is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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DaVita's Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to thoroughly review a company's financial strength before deciding to buy shares. DaVita's financial strength, as suggested by its cash-to-debt ratio of 0.03, ranks worse than 93.38% of companies in the Healthcare Providers & Services industry. This poor balance sheet ranking indicates the need for caution when considering investment.
Profitability and Growth of DaVita
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. DaVita has been profitable 10 times over the past 10 years. The company's profitability ranks 9 out of 10, indicating strong profitability. Its operating margin is 11.03%, which ranks better than 75.38% of companies in the Healthcare Providers & Services industry.
Growth is a significant factor in the valuation of a company. DaVita's 3-year average annual revenue growth is 17.8%, which ranks better than 71.28% of companies in the Healthcare Providers & Services industry. The 3-year average EBITDA growth rate is 13.5%, ranking better than 56.41% of companies in the same industry.
ROIC vs WACC Analysis
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to determine its profitability. For the past 12 months, DaVita's ROIC is 6.38, and its cost of capital is 5.24, implying the company is creating value for shareholders.
Conclusion
In conclusion, the stock of DaVita appears to be modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 56.41% of companies in the Healthcare Providers & Services industry. For more details about DaVita stock, you can check out its 30-Year Financials here.
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