Zacks_Analysts' Blog : DaVita Completes DSI Acquisition - Analyst Blog

DaVita Inc. (DVA) has completed the acquisition of DSI Renal Inc. after the Federal Trade Commission (FTC) gave the anti-trust clearance for the deal. The merger deal of approximately $690 million was announced on February 4, 2011. Credit Suisse Group (CS) acted as DaVita’s financial advisor.

However, FTC’s approval came with the condition that DaVita must sell 30 clinics, most of which were acquired as part of the DSI merger. DaVita will sell these clinics for about $91 million.

DSI is the fifth largest provider of outpatient dialysis services in the US, which is one of the main services of DaVita. The company is one of the leading providers of kidney care in the US. The acquisition will not only allow the company to expand its client base, but will also provide access to new areas of work in the Midwestern, Southern and some Western states.

Acquisition of dialysis centers and businesses that own and operate dialysis centers, as well as other ancillary services and strategic initiatives have been DaVita’s preferred business strategy for years. As of fiscal 2010, the number of centers with DaVita increased at a 4-year CAGR of 5.86%. DaVita acquired and opened a total of 33 centers, closed 2 and sold 1 center during the first quarter of 2011.

Earnings Review

DaVita reported a second-quarter net operating income of $114.4 million, or $1.17 per share, which exceeded the Zacks Consensus Estimate by 3 cents. The earnings were also higher than $110.4 million or $1.06 per share earned in the comparable quarter of 2010. The increased income was attributable to better-than-expected revenues, reduced operating expenses and strong cash flows of the company.

Further, the Zacks Consensus Estimate for third quarter earnings is currently at $1.30 per share, up about 13% year-over-year. Of the 14 firms covering the stock, 7 have revised their estimates upwards, while 4 downward revisions were witnessed in the last 30 days.

For 2011, earnings are expected to be about $4.83 per share, climbing about 10.23% year-over-year. DaVita currently caries a Zacks #2 Rank, implying a short term Buy rating.

On Friday, the shares of the company closed at $71.36, down 2.65%, on the New York Stock Exchange.