Company ProfileÂ (excerpt from Reuters): DaVita Inc., formerly DaVita HealthCare Partners Inc., incorporated on April 4, 1994, operates two divisions: DaVita Kidney Care (Kidney Care) and DaVita Medical Group (DMG). The Kidney Care division consists of the Company’s the United States dialysis and related lab services, its ancillary services and strategic initiatives, including its international operations, and its corporate administrative support. Its DMG division is a patient- and physician-focused integrated healthcare delivery and management company that provides medical services to members primarily through capitation contracts with some of the nation’s health plans. The Company’s segments include U.S. dialysis and related lab services, DMG, and Other-Ancillary services and strategic initiatives. Its U.S. dialysis and related lab services line of business provide kidney dialysis services in the United States for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD). In addition, as of December 31, 2016, the Company operated or provided administrative services to 154 outpatient dialysis centers serving patients located in 11 countries outside of the United States.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$11,707,204,361||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.94||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||80.25%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||19.29||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.55||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.94||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||1.62||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||2.95%|
|MG Value based on 3% Growth||$50.44|
|MG Value based on 0% Growth||$29.57|
|Market Implied Growth Rate||5.39%|
|% of Intrinsic Value||133.90%|
Davita Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.91 in 2014 to an estimated $3.48 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Davita Inc revealed the company was trading above its Graham Number of $47.61. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 19.29, which was below the industry average of 46.81, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.17.
Davita Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$30.17|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2018|
|Total Current Assets||$8,673,555,000|
|Total Current Liabilities||$2,947,523,000|
|Shares Outstanding (Diluted Average)||181,835,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.92|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$3.48|
Other ModernGraham posts about the company
|Davita Inc Valuation â€“ February 2017 $DVA|
|DaVita HealthCare Partners Inc Valuation â€“ November 2015 Update $DVA|
|30 Companies in the Spotlight This Week â€“ 11/15/14|
|DaVita Healthcare Partners Inc. Annual Valuation â€“ 2014 $DVA|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.