DaVita Inc - Momentum

DVA 012512

Davita (DVA)

Insurance companies aren’t the only ones who stand to benefit from healthcare for all. Providers like DaVita will be able to help more sick patients under the new plan and in turn generate more profits.

They are the premier kidney care provider in America and serve the more than 400,000 people in need of their services. They are looking to expand their services over the coming years which should prove to be a profitable venture according to analysts.

Studies have shown that many on dialysis are not getting enough treatment. This is not only true here, but abroad as well. DaVita is working to make treatment easier, cheaper and more convenient. They are growing fast and their stock price is doing the same.

Company Description & Developments
DaVita currently operates or provides administrative services to approximately 1400 outpatient dialysis centers located in 43 states and the District of Columbia, serving approximately 110,000 patients.

The company was recently upgraded to buy at Zacks Equity Research. They cited strong cash flow and strategic acquisitions. Just yesterday, DaVita announced a majority stake in Nephrolife India. This is a longer term strategic move to expand their services globally.

It’s important to note that DaVita has achieved clinical outcomes for patients that have improved year-over-year for more than a decade. They are making people’s lives better not only with their products, but also through education, prescription management and assistance with everything from traveling to home dialysis solutions.

Financial Profile
DaVita is a mid-cap company (7.56 billion) that is trading at about 17 times trailing earnings (P/E). Looking forward, Zacks Consensus Estimates are calling for that number to drop to 13 with no change in price from these levels.

DaVita hit the Zacks Rank 1 Strong Buy list just yesterday from a rank of 2. It has been a buy (Rank 2) since Jan 5, 2011

DaVita reported a 5.63% quarterly sales increase at their last earnings report on November 3, 2011.

They saw year over year sales growth of 9.46% and a 26% rise in earnings per share in the same period with total sales of roughly 6.4 billion in FY2010. DaVita is expected to earn $5.05 in FY2011 according to the Zacks Consensus Estimate.

Earnings Estimates
We saw one analyst revise next quarter’s earnings estimates up within the past month. The others have stood firm on their estimates to date. DaVita will report Q4 results on February 16th. Expectations are for DaVita to generate $1.48 in income this quarter. Of the 13 analysts who cover DaVita, the consensus is for the company to grow earnings by 15.38% in FY2011 with another jump of 23.03% in FY2012.

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago from current quarter, out to FY 2012. It’s important to note that revisions have not been dramatically higher.

DaVita missed estimates last quarter by 0.68%, with the average earnings surprise being a positive 0.97% over the past year. It seems as though analysts tend to be one point with their estimates in DVA.

Market Performance & Technicals
The chart for DaVita has gotten particularly strong over the past three months. DVA has been up for five trading days and has been riding along the upper edge of its Bollinger band. This action leads me to believe that we should see a pullback soon, which would present an opportunity to ride this recent momentum.

DVA has remained above its 50 day moving average since early November. The stock is about $8.00 away from its 52 week high of $89.76 which was made back in July of 2011.

The stock just broke above its 200 day moving average of $77.63, which is the first time since August of 2011. I would watch this level for support and if DVA breaks below it, we might see further selling down to the 50 day average of $75.84.

DaVita has outpaced the S&P 500 by 8.17% over the past year and almost 10% over the last twelve weeks. DVA has kept up its momentum, jumping ahead of the S&P’s performance by 2% during the last month.

It might be smart to wait for the pullback before moving into DVA.