Skip to Content
Morningstar

DaVita Earnings: Strong Cash Flows and Another Increase to 2023 Guidance Boost Valuation

""
Securities In This Article
DaVita Inc
(DVA)

Narrow-moat DaVita DVA turned in second-quarter results that exceeded expectations, and management increased its 2023 guidance for the second time this year. We have increased our fair value estimate to $116 per share from $108 to reflect these strong trends, especially on the margin and working capital front.

In the quarter, DaVita fared better than anticipated as external challenges eased and the firm controlled costs and working capital. 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 3% year over year, including U.S. treatments per day that declined 1% year over year (near the top end of its expectation of a flat to 3% decline for 2023) while revenue per treatment grew 3%. Management also pointed to sequential gains in this figure that can be sticky. Also, patient care costs per treatment only grew 2% year over year, and notably, contract labor costs returned to prepandemic levels in the period, which is a good development. Overall, while adjusted EPS declined 10% year over year to $2.08, that was well above FactSet consensus of $1.71, which investors may appreciate.

On these trends, DaVita increased its guidance for the full year again. Now, management expects a low-double-digit increase in adjusted EPS at the midpoint of its new guidance range of $7.00-$7.80 (from $6.20-$7.30 previously), which may be possible especially as comparable periods get easier in the second half of the year. Also, the company added $100 million of expected free cash flow to both ends of its new annual target of $850 million-$1.1 billion for 2023 on increasing profits and better working capital management. Overall, we appreciate that DaVita’s near-term challenges appear to be easing a bit after a tough pandemic period, and we’ve increased our near-term assumptions to reflect that, which led to the fair value increase.

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

More in Stocks

About the Author

Julie Utterback

Senior Equity Analyst
More from Author

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.

Sponsor Center