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Here’s Why You Should Hold On to DaVita (DVA) Stock Now


With a market capitalization of approximately $11.25 billion, DaVita Inc. DVA is expected to benefit from strong performance in the DaVita Kidney Care segment. However, unfavorable changes in the DaVita Rx unit are temporary headwinds.

Here we take a quick look at the primary factors that have been plaguing DaVita and discuss the prospects that ensure near-term recovery of the stock.

Which Way are the Estimates Treading?

For the current quarter, the Zacks Consensus Estimate for earnings is pegged at 90 cents per share, reflecting an improvement of 11.1% year over year. The same for revenues is pegged at $2.92 billion.

For 2018, the Zacks Consensus Estimate for revenues is pegged at $11.61 billion. The consensus mark for 2018 adjusted earnings is pinned at $4.02, reflecting an increase of 21.1% on a year-over-year basis.

The stock has a Zacks Rank #3 (Hold).

What's Deterring DaVita?

By the end of the second quarter of 2018, management announced that unfavorable changes in the oral pharmacy space, including reimbursement reductions, have hurt performance in the DaVita Rx unit. For investors’ notice, DaVita Rx is a full-service pharmacy specializing in kidney care and dedicated to the safety of patients. Due to sluggishness in the DaVita Rx unit, management plans to outsource the customer service and fulfillment functions.

For the second half of the year, DaVita expects to incur an adjusted loss on DaVita Rx operations of $20 million to $35 million due to duplicative costs during the transition. However, in 2019 and beyond, no significant net financial impact from DaVita Rx is expected.

Shares of DaVita have underperformed the industry in a year's time. The stock has gained 11.3% compared with the industry's rally of 23.1%.

Why Should You Hold?

DaVita Medical Group provides integrated care management as an operating division of the company. The unit is the nation's largest operator of medical groups and physician networks, which focuses on delivering healthcare through a broad range of services.

By the end of the second quarter of 2018, net consolidated revenues in the segment were $2.87 billion, up 7% year over year. Adjusted Kidney Care operating income was $438 million, up 12% year over year. As an operating division, DaVita Kidney Care focuses on setting worldwide standards for clinical, social and operational practices in kidney care.

Want More from the MedTech Space?

A few better-ranked stocks in the MedTech space are Penumbra, Inc PEN, Masimo Corporation MASI and Illumina, Inc ILMN. Penumbra and Illumina sport a Zacks Rank #1 (Strong Buy). Masimo currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra has a long-term expected earnings growth rate of 20%, while the same for Masimo and Illumina is pegged at 14.8% and 22.1%, respectively.

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