DaVita (DVA)

Dialysis provider DaVita Inc. (NYSE:DVA) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 5% year on year to $3.22 billion. Its non-GAAP profit of $2 per share was 1% below analysts’ consensus estimates.

Company Overview

With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE:DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.

The outpatient and specialty care industry delivers targeted medical services in non-hospital settings that are often cost-effective compared to inpatient alternatives. This means that they are more desired as rising healthcare costs and ways to combat them become more and more top-of-mind. Outpatient and specialty care providers boast revenue streams that are stable due to the recurring nature of treatment for chronic conditions and long-term patient relationships. However, their reliance on government reimbursement programs like Medicare means stroke-of-the-pen risk. Additionally, scaling a network of facilities can be capital-intensive with uneven return profiles amid competition from integrated healthcare systems. Looking ahead, the industry is positioned to grow as demand for outpatient services expands, driven by aging populations, a rising prevalence of chronic diseases, and a shift toward value-based care models. Tailwinds include advancements in medical technology that support more complex procedures in outpatient settings and the increasing focus on preventive care, which can be aided by data and AI. However, headwinds such as reimbursement rate cuts, labor shortages, and the financial strain of digitization may temper growth.

DaVita's primary competitor in the U.S. dialysis market is Fresenius Medical Care (NYSE: FMS), which operates a similar network of dialysis centers. Other competitors include U.S. Renal Care, American Renal Associates, and various regional and hospital-based dialysis providers.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $12.97 billion in revenue over the past 12 months, DaVita has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, DaVita grew its sales at a tepid 2.5% compounded annual growth rate. This fell short of our benchmarks and is a tough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. DaVita’s annualized revenue growth of 5.4% over the last two years is above its five-year trend, but we were still disappointed by the results.

DaVita also reports its number of treatments, which reached 7.04 million in the latest quarter. Over the last two years, DaVita’s treatments were flat. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, DaVita reported modest year-on-year revenue growth of 5% but beat Wall Street’s estimates by 0.5%.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not lead to better top-line performance yet.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

DaVita has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 14.1%, higher than the broader healthcare sector.

Looking at the trend in its profitability, DaVita’s operating margin rose by 1.3 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 4.5 percentage points on a two-year basis.

In Q1, DaVita generated an operating profit margin of 13.6%, down 2.1 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

DaVita’s EPS grew at a solid 7.9% compounded annual growth rate over the last five years, higher than its 2.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into DaVita’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, DaVita’s operating margin declined this quarter but expanded by 1.3 percentage points over the last five years. Its share count also shrank by 36%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, DaVita reported EPS at $2, down from $2.26 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects DaVita’s full-year EPS of $9.42 to grow 22.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

DaVita has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.6% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that DaVita’s margin expanded by 4 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

DaVita’s free cash flow clocked in at $36.75 million in Q1, equivalent to a 1.1% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although DaVita hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 15.3%, impressive for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, DaVita’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

DaVita reported $511.9 million of cash and $12.32 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.71 billion of EBITDA over the last 12 months, we view DaVita’s 4.4× net-debt-to-EBITDA ratio as safe. We also see its $400.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see DaVita narrowly top analysts’ revenue and EBITDA expectations this quarter. On the other hand, its full-year EPS guidance missed significantly and its sales volume fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $143.65 immediately following the results.

Updated: May 22, 2025 at 11:20 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own DaVita, you should also grasp the company’s longer-term business quality and valuation.

There are some bright spots in DaVita’s fundamentals, but its business quality ultimately falls short. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while DaVita’s flat treatments disappointed, its rising cash profitability gives it more optionality.

DaVita’s P/E ratio based on the next 12 months is 12x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $163.01 on the company (compared to the current share price of $138.52).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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