Zacks_Analysts' Blog : DaVita Faces New Investigations - Analyst Blog

Two law firms started investigations against DaVita Inc. (DVA) earlier this week regarding the alleged over-billing of Medicare by the company.

DaVita is already facing two federal investigations for over-billing of Medicare and over-use of Epogen, a medicine used for increasing the red blood cells in kidney patients. Additionally, as per the Denver Post, the company is also being investigated for forging inappropriate alliances with pharmaceutical companies and physicians.

Now, Bronstein, Gewirtz & Grossman LLC has started an investigation to determine whether DaVita has violated any federal securities laws, while Brodsky & Smith LLC is investigating the impact of the federal investigations on the company.

If the charges of over-billing Medicare are found to be true, DaVita might be heavily fined. Under the False Claims Act, the company might have to pay three times the losses caused to the government due to the over-billing, along with civil penalties.

Earnings Review

DaVita reported 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.

Further, the Zacks Consensus Estimate for DaVita’s third-quarter earnings is currently at $1.29 per share, up about 12.36% year-over-year. Of the 14 firms covering the stock, 1 firm revised its estimate downward, while no upward revisions were witnessed in the last 30 days.

For 2011, earnings are expected to be about $4.81 per share, climbing about 9.92% year-over-year. The company competes with Lincare Holdings Inc. (LNCR) and HealthSouth Corporation (HLS).

Currently, DaVita caries a Zacks #2 Rank, implying a short term Buy rating.

On Thursday, the shares of the company closed at $64.47, up 2.89%, on the New York Stock Exchange.