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Kidney dialysis services company DaVita could soon see a turning point in treatment growth, according to UBS. Analyst Andrew Mok upgraded shares to buy from neutral. He also increased his price target to a Street-high of $142 per share, implying 30.5% upside from Friday’s close. “Combined with better pricing and a lower cost structure (ESA savings, closed clinics), we see numerous tailwinds that support our Street-high earnings estimates and contrarian Buy rating,” Mok said in a Monday note. The analyst forecasts the company could post $9 per share in 2024, which lies between 10% to 18% above other analyst estimates. Dialysis patient growth has improved over the past three quarters following the post-Covid recovery, said Mok. He expects growth to meaningfully accelerate in the fourth quarter and in 2024. “When contemplating a lower fixed cost structure, the accelerating growth provides a favorable backdrop for positive operating leverage and sustainable 16%+ US Dialysis EBIT margins,” Mok said. According to Mok, DaVita has outperformed initial earnings guidance in the first half of 2023 owing to multiple tailwinds. The analyst cited higher revenue per treatment, better mortality trends and continued execution on contract labor. Accordingly, he views it very likely that the company will resume its share repurchases program in the fourth quarter. DaVita shares jumped more than 7% Monday premarket. The stock has rallied more than 45% in 2023. DVA 1D mountain DVA pops —CNBC’s Michael Bloom contributed to this report.
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