As reflected at the current price of $135, what future DaVita operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, DaVita shares will need to reach $226. Upper quartile performance will require a $267 DaVita stock price by 2029.
Executive Summary
- Key DaVita characteristics: very high profitability, stability, above average expected growth, and low financial strength. A big positive influence on DaVita’s valuation is its superior Profitability.
- Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the DaVita Peer Group. Recent market returns have significantly outperformed the DaVita Peer Group. Total shareholder returns expected to seriously lag the overall equity market. Based on current investor expectations, DaVita shares should reach a level of $182 by 2029 — an 5.1% per year total shareholder return. A 2029 stock price of $226 would reflect median performance and a price of $267 would be required to reach upper quartile performance.
- Historical growth has been average relative to the DaVita Peer Group and forecasted growth is relatively high. DaVita’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. DaVita’s consensus growth expectations are lower than historical growth.
- Profitability has been DaVita’s biggest valuation strength. Return on Equity is group leading. This factor has strengthened market perceptions of DaVita. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- DaVita’s risk profile is neutral. Overall variability has been relatively low with relatively low revenue variability, relatively low E.P.S. variability, and relatively low stock price volatility. Financial Strength is very low and earnings’ expectations are relatively high. The debt/capital ratio has been relatively steady.
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