(DVA) DaVita Incorporated – Bull of the Day

We are upgrading our recommendation on DaVita, Inc. (DVA) to Outperform based on the company’s strong cash flows and strategic acquisitions. The new bundled ESRD payment system is also expected to be a long-term positive. The company’s third-quarter earnings slightly exceeded the Zacks Consensus
Estimate on the back of strong top-line growth, partially offset by higher operating expenses.

Moreover, a strong cash position expands the potential for meaningful M&A. While the acquisition of DSI should bring in new opportunities in most states, the company has to divest some of its centers as a condition. Nevertheless, we believe downside from current levels is likely limited.

Our six-month target price of $96.00 equates to 19.0x our earnings estimate for 2011. This price target implies an expected total return of 20.3% over that period. This is consistent with our Outperform recommendation on the shares.

DAVITA INC (DVA): Free Stock Analysis Report

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