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DaVita Earnings: Stellar Results Boost 2023 Outlook

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Narrow-moat DaVita DVA turned in strong third-quarter results that exceeded expectations, and management increased its 2023 guidance for the third time this year. We are keeping our $104 fair value estimate intact, but recognize the firm’s strong trends on the top and bottom lines, which may be enhanced by management’s plans to resume its share repurchase program. We think repurchases would be a good use of capital considering recent trades well below intrinsic value and the firm’s leverage in the middle of its target range.

In the quarter, DaVita fared better than anticipated as external challenges eased and the firm controlled costs well. For example, COVID-19 mortality challenges appear to be dissipating in the dialysis market, as the pandemic turns into an endemic situation. With that easing, sales in the quarter grew 6% year over year, including about flat treatments and revenue per treatment up 3% in the U.S. DaVita’s cost controls really stood out in the quarter, as the company reduced both its patient care costs (on the switch to Mircera drug costs for anemia management and reduced labor pressures,) and general and administrative costs per treatment. In total, U.S. operating profit per treatment grew 29% year over year by our calculations, which looked strong in that mature market, and overall, DaVita’s adjusted EPS nearly doubled to $2.85 in the period, or well above FactSet consensus of $2.01.

On these stellar trends, DaVita increased its 2023 guidance again. Now, management expects a 22% increase in adjusted EPS at the midpoint of its new guidance range of $7.80-$8.30 (from $7.00 to $7.80 previously). Also, the company increased its free cash flow estimate to $950 million to $1.15 billion, up from $850 million to $1.1 billion previously. Overall, we appreciate that DaVita’s near-term challenges appear to be easing a bit after a tough pandemic period, but our fair value estimate has not changed materially, despite mild changes to our near-term expectations.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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