DaVita Inc (DVA, Financial) has recently shown a notable daily gain of 4.76%, and a 3-month gain of 10.6%. With an Earnings Per Share (EPS) of 8.8, investors might wonder if the stock is modestly overvalued. This article delves into DaVita's valuation, encouraging readers to explore the detailed analysis that follows.
Company Introduction
DaVita Inc (DVA, Financial) stands as the largest provider of dialysis services in the United States, commanding a significant market share by both patients and clinics. Operating over 3,000 facilities globally, mostly in the U.S., DaVita treats over 240,000 patients annually. The company's financial dynamics are heavily influenced by government payers, with about two-thirds of U.S. sales at government (primarily Medicare) reimbursement rates, while commercial insurers, representing only about 10% of U.S. patients, contribute nearly all of the profits from the U.S. dialysis business. Comparing the current stock price of $138.54 to the GF Value, which estimates the fair value at $112.48, suggests that DaVita might be modestly overvalued.
Summarize GF Value
The GF Value is a proprietary measure reflecting the intrinsic value of a stock, calculated from historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Currently, DaVita's stock price is above its GF Value, indicating it may be overvalued, which could lead to lower future returns compared to its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. DaVita's cash-to-debt ratio of 0.03 is lower than 90.58% of its industry peers, indicating weak financial health. This poor financial strength, rated 4 out of 10 by GuruFocus, necessitates a cautious approach for potential investors.
Profitability and Growth
DaVita has maintained profitability over the past decade, with a strong operating margin of 14.09%, ranking well within its industry. However, its growth metrics, with a 3-year average revenue growth rate better than 55.25% of its peers but an EBITDA growth rate lower than 51.83%, present a mixed picture. These figures suggest that while DaVita is capable of generating profits, its growth trajectory could be more robust.
ROIC vs WACC
Evaluating DaVita's profitability involves comparing its Return on Invested Capital (ROIC) of 8.86 to its Weighted Average Cost of Capital (WACC) of 6.68. Since its ROIC exceeds its WACC, DaVita is effectively creating value for its shareholders, a positive indicator for potential investors.
Conclusion
Overall, while DaVita (DVA, Financial) is estimated to be modestly overvalued, its strong profitability and effective capital utilization suggest potential for value creation. However, its modest growth rates and weak financial strength warrant careful consideration. For a deeper analysis, explore DaVita's 30-Year Financials here.
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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.
