DaVita Inc (DVA, Financial) saw a daily gain of 5.89% and a three-month gain of 29.73%. With an Earnings Per Share (EPS) of 5.03, there's a question that arises: Is the stock modestly undervalued? In this article, we will delve into a comprehensive valuation analysis of DaVita (DVA) to answer this question.
Company Overview
DaVita is the leading provider of dialysis services in the United States, controlling over 35% of the market share in terms of both patients and clinics. The company operates more than 3,000 facilities worldwide, primarily in the U.S., and treats over 240,000 patients globally each year. Despite the dominance of government payers in U.S. dialysis reimbursement, DaVita generates nearly all of its U.S. dialysis business profits from commercial insurers. With a current stock price of $115.22 per share and a market cap of $10.50 billion, the question remains: Is DaVita stock modestly undervalued?
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is 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.
According to the GuruFocus Value calculation, DaVita (DVA, Financial) is estimated to be modestly undervalued. Given this undervaluation, the long-term return of DaVita stock is likely to be higher than its business growth.
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Financial Strength
Investors run a high risk of permanent capital loss with companies of poor financial strength. To avoid this, it's crucial to review a company's financial strength before purchasing shares. DaVita's cash-to-debt ratio of 0.03 ranks worse than 93.24% of companies in the Healthcare Providers & Services industry, indicating that the company's financial strength is poor.
Profitability and Growth
Investing in profitable companies carries less risk, especially in those that have demonstrated consistent profitability over the long term. DaVita has been profitable for 10 years over the past decade. With an operating margin of 10.73%, it performs better than 74.62% of companies in the Healthcare Providers & Services industry. Furthermore, the 3-year average annual revenue growth rate of DaVita is 17.8%, which ranks better than 71.28% of companies in the industry.
ROIC vs WACC
The profitability of a company can also be determined by comparing its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, DaVita's ROIC is 6.3, and its cost of capital is 5.23.
Conclusion
In conclusion, DaVita (DVA, Financial) is estimated 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. To learn more about DaVita stock, you can check out its 30-Year Financials here.
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