DaVita is Tuesday's IBD Stock Of The Day. Shares have lingered in a buy zone for a month, buoyed by strong earnings growth and better-than-expected sales.
The Denver, Colo.-based manager of dialysis centers is benefiting from improvements in the revenue it receives per patient. That helped drive nearly 25% growth in June-ended quarter earnings and a slight sales beat.
In a March report, UBS analyst A.J. Rice said DaVita still has room for additional upside in 2024.
"The company has several sources for upside to growth expectations, including further improvements in the rate of missed treatments as well as room for excess mortality to come down further," Rice said.
DaVita stock is trading in the 5% buy zone above a buy point at 147.93 out of a flat base. Shares broke out on Aug. 14 following the company's second-quarter report on Aug. 6.
DaVita Stock: Second-Quarter Beat
DaVita's adjusted earnings came in at $2.59 per share in the second quarter. That matched the Street's call, according to FactSet. Sales inched almost 4% ahead to $3.19 billion and topped the consensus call for $3.15 billion.
The strong earnings growth is reflected in DaVita stock's IBD Digital EPS Rating of 93 out of a best-possible 99. This puts its shares in the leading 7% of all stocks when it comes to recent earnings growth.
Chief Executive Javier Rodriguez noted improvements in revenue per treatment. DaVita has invested in technology and worked to modernize the way it collects data. This has made it easier to navigate billing and insurance requirements.
As a result, the company now expects revenue per treatment, or RVT, to increase by 3.5%-to-4% this year, up from its previous outlook for 2.5%-to-3%.
DaVita also hiked its adjusted operating income guidance to $1.91 billion to $2.01 billion. That's up $35 million at the midpoint from the company's prior outlook. It includes an expected $95 million increase in operating performance, offset by a $60 million hit from center closures.
Mortality Increase Is Puzzling
There are drawbacks facing DaVita stock, however.
Patients often miss treatments due to outside forces, like weather events. Further, more patients are dying and the U.S. population isn't growing as fast as DaVita projected. Mortality is a "widespread phenomenon and is not specific to dialysis patients," UBS' Rice said.
But this "makes it difficult to evaluate whether it could moderate in the near term," he said.
Still, DaVita stock has a strong Composite Rating of 92, putting it in the top 8% of all stocks when it comes to fundamental and technical measures. The Relative Strength Rating of 90 means DaVita shares outrank 90% of all stocks in terms of 12-month performance.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
