DaVita Inc (DVA, Financial) has recently seen a daily gain of 6.49%, although it has experienced a 3-month loss of 18.5%. With an Earnings Per Share (EPS) of 6.52, investors are contemplating whether the stock is modestly undervalued. This analysis aims to delve into DaVita's valuation, exploring the reasons behind its current market position and prospects for the future. Continue reading for an in-depth valuation analysis of DaVita (DVA).
Company Introduction
DaVita Inc (DVA, Financial) stands as the largest dialysis services provider in the United States, commanding over 35% of the market in terms of both patients and clinics. Operating more than 3,000 facilities globally, DaVita treats over 240,000 patients each year. The company's financial performance is heavily influenced by government reimbursement rates, with about two-thirds of U.S. sales derived from government payers, primarily Medicare. Despite this, commercial insurers, representing a smaller patient percentage, contribute nearly all of DaVita's U.S. dialysis business profits. Comparing DaVita's current stock price of $88.38 to the GF Value of $120.62 reveals a potential undervaluation, prompting a closer examination of the company's intrinsic value.
Summarize GF Value
The GF Value is a unique metric that assesses the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If a stock's price significantly diverges from the GF Value Line, it may indicate overvaluation or undervaluation, impacting future returns. DaVita (DVA, Financial), with its current price of $88.38 per share, appears to be modestly undervalued according to the GF Value, suggesting a potential for higher long-term returns relative to its business growth.
Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. DaVita's cash-to-debt ratio of 0.04 ranks lower than 90.99% of its peers in the Healthcare Providers & Services industry. This ratio, along with a financial strength rating of 4 out of 10 from GuruFocus, suggests a weaker balance sheet that investors should consider.
Profitability and Growth
DaVita has a solid track record of profitability, having been profitable for the past decade. With a revenue of $11.90 billion and an Earnings Per Share (EPS) of $6.52 over the last twelve months, the company boasts an operating margin of 12.13%, outperforming 75.49% of its industry counterparts. GuruFocus awards DaVita a profitability rank of 9 out of 10, indicating a strong profitability profile.
Regarding growth, DaVita's 3-year average revenue growth rate surpasses 71.89% of the companies in its industry, and its EBITDA growth rate is also commendable. Such growth is a key valuation factor and often correlates with long-term stock performance.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can reveal its value creation efficiency. DaVita's ROIC over the past 12 months stands at 7.31, exceeding its WACC of 5.68, indicating the company's capability to generate cash flow effectively relative to its capital investment.
Conclusion
In summary, DaVita (DVA, Financial) presents signs of being modestly undervalued. Despite its financial condition posing some concerns, the company's profitability is impressive, and its growth trajectory bodes well for future value creation. For a more detailed look into DaVita's financials, investors can explore its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, visit the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
