DaVita Inc Valuation – March 2019 #DVA

Company Profile (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:

ModernGraham Valuation of DVA – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,919,039,746 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.72 Fail
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 17.39% Fail
6. Moderate PEmg Ratio PEmg < 20 18.25 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.29 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 1.72 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.31 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

EPSmg $2.94
MG Growth Estimate 3.21%
MG Value $43.95
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $42.70
MG Value based on 0% Growth $25.03
Market Implied Growth Rate 4.87%
Current Price $53.74
% of Intrinsic Value 122.29%

Davita Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and 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 explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.43 in 2015 to an estimated $2.94 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.87% 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 $45.04. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.25, which was below the industry average of 53.13, 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 $-40.73.

Davita Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$40.73
Graham Number $45.04
PEmg 18.25
Current Ratio 1.72
PB Ratio 2.29
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $8,424,159,000
Total Current Liabilities $4,891,161,000
Long-Term Debt $8,172,847,000
Total Assets $19,110,252,000
Intangible Assets $6,960,806,000
Total Liabilities $15,201,854,000
Shares Outstanding (Diluted Average) 166,413,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.05
Dec2018 $0.92
Dec2017 $3.47
Dec2016 $4.29
Dec2015 $1.25
Dec2014 $3.33
Dec2013 $2.95
Dec2012 $2.74
Dec2011 $2.48
Dec2010 $1.97
Dec2009 $2.03
Dec2008 $1.77
Dec2007 $1.78
Dec2006 $1.37
Dec2005 $1.10
Dec2004 $1.08
Dec2003 $0.78
Dec2002 $0.61
Dec2001 $0.48
Dec2000 $0.05
Dec1999 -$0.60

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.94
Dec2018 $2.48
Dec2017 $3.19
Dec2016 $3.01
Dec2015 $2.43
Dec2014 $2.91
Dec2013 $2.61
Dec2012 $2.36
Dec2011 $2.11
Dec2010 $1.88
Dec2009 $1.76
Dec2008 $1.55
Dec2007 $1.37
Dec2006 $1.11
Dec2005 $0.92
Dec2004 $0.76
Dec2003 $0.48

Recommended Reading:

Other ModernGraham posts about the company

DaVita Inc Valuation – June 2018 $DVA
Davita Inc Valuation – February 2017 $DVA
DaVita HealthCare Partners Inc Valuation – November 2015 Update $DVA
30 Companies in the Spotlight This Week – 11/15/14
DaVita Healthcare Partners Inc. Annual Valuation – 2014 $DVA

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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