Integrating your previous analysis and comparing and contrasting t

The following is a final analysis of DaVita, LabCorp and Quest Diagnostics’ recent strategic actions, how they harness and affect each company’s financials, recommendations for improving each company’s financial policies and reasonings as to which company will be the most successful in the future. 

DaVita has seen some ups and downs recently when it comes to financial performance. Back in October, there was a major plummet in their stock, which was a result of a devastating third-quarter report. This report made DaVita suffer their worst performance in more than two decades, after the dialysis company reported their third quarter that fell well below expectations and slashed its full-year outlook, citing declining treatments and rising labor costs. The stock, 0.93% dove 27.1% to $70.54, the lowest close since April 3, 2020. Trading volume swelled to about 5.4 million shares, compared with the full-day average over the past 30 days of about 629,500 shares. It was the biggest one-day selloff for the stock since it tumbled 32.2% on Jan. 19, 2000. DaVita’s CEO stated, "The third quarter was a challenging quarter for us. Like others in the healthcare community, negative volume trends due to COVID and continued labor pressure impacted our financial performance more than expected." said Javier Rodriguez. "Despite this, I'm incredibly proud of the execution of our teams in a challenging operating environment and the unwavering focus of our frontline teammates on patient care. Looking ahead, I remain confident in our business and ability to leverage our end-to-end kidney care platform as a differentiated asset."

There are a lot of unknowns and uncertainties that are hindering DaVita’s financial performances. One way DaVita can improve their financial policies is by tackling problems as soon as they arise. It is always very stressful facing financial problems as a business, but there is help and advice available that can help DaVita tackle problems before it gets too much to handle. Therefore, seeking advice from others and looking at what other healthcare services are doing to attack this problem is a way to stay ahead. There are also some initial steps DaVita can take to minimize the impact such as tackling priority debts first and assessing how they can improve their cash flow management. I believe DGX is going to be the most successful company when looking toward the future of each company. This is a company that others can look at to strive to do the same. The financial health and growth prospects of DGX demonstrate its potential to outperform the market, which is why I believe this is the best company going forward.

LabCorp has found success in navigating – and leading, the healthcare industry’s ongoing response to COVID-19. Despite this, LabCorp shareholders have seen underperformance in the last fiscal year, with shares declining 16.4% compared with the industry’s 9.1% fall (Zacks Equity Research, 2022). 

In October 2022, LabCorp reported third quarter revenue at $3.6 billion, versus $4.1 billion in the previous year. Additionally, diluted EPS was $3.90 versus $6.05 in the previous year, and a free cash flow of $270 million versus last year’s $650 million (LabCorp, 2022). The revenue decrease was cited as a result of a decrease COVID-19 PCR test demand, forgein currency translation and acquisition offsets. Similar reasoning was also provided for LabCorp’s year-to-date results, which have been in “red” for the first nine months of 2022 (LabCorp, 2022). 

However, many analysts still regard LabCorp as a “buy” for its potential earnings. LabCorp aims to align its expansion goals strategically and with the needs of the industry, from corporate partnerships to everyday patients. Recent strategic actions by LabCorp include the continued prioritization of its Drug Development sector, industry acquisitions and partnerships, and filing for a mixed shelf offering (Block, 2022). 

As the demand for COVID-19 testing decreases, LabCorp’s Drug Development sector has protected the company from any sort of drastic decrease in revenue. This diversification of revenue streams has benefited the company and helped growth remain stable. Additionally, LabCorp reported the completion of transactions that establish a long-term relationship with Ascension laboratories. The company stated that acquiring and managing Ascension labs in over 10 states will allow LabCorp to expand access and services for both patients and providers (LabCorp, 2022). Lastly, in November 2022 LabCorp filed for a mixed shelf offering. This essentially means that the company has filed with the SEC to issue securities at an undisclosed time in the future for a strategic reason (Johnson, 2022). LabCorp has stated the proceeds will be used for “general corporate purposes” (Block, 2022). 

Two key recommendations for the future of LabCorp include using the mixed shelf offering in a way that will benefit shareholders and to continue the company’s diversified revenue stream model. Although the purpose was not disclosed, it is imperative for LabCorp to use the mixed shelf offering proceeds in a way that will benefit its shareholders. As a public company, executives do have a fiduciary responsibility to its stakeholders. Using the mixed shelf offering in a way that will dilute the company’s shares could create distrust and decrease shareholder confidence. Additionally, LabCorp’s strategic corporate structure continues to allow for growth and value provided to patients and the industry at large. 

In conclusion, based on LabCorp’s recent strategic actions, shareholder investment and our financial analysis throughout the course, LabCorp shows a high potential to be the most successful of the group in the future. Diversification over specialization and rapid expansion have been key for LabCorp’s growth and success.

Quest Diagnostics- Need to write on this company-Our Answer

References

Block, J. (2022, November 18). Labcorp files for mixed shelf offering (NYSE:LH). SeekingAlpha. Retrieved December 10, 2022, from https://seekingalpha.com/news/3909835-labcorp-files-for-mixed-shelf-offering

DaVita. (2022, October 28). Davita Inc. 3rd quarter 2022 results. DaVita Inc. 3rd Quarter 2022 Results. Retrieved December 10, 2022, from https://www.prnewswire.com/news-releases/davita-inc-3rd-quarter-2022-results-301662090.html

Johnson, J. (2019, September 9). Can you explain what a mixed shelf is? for example, Raytheon announced a $3 billion mixed shelf. Investment House. Retrieved December 10, 2022, from https://www.investmenthouse.com/can-you-explain-what-a-mixed-shelf-is-for-example-raytheon-announced-a-3-billion-mixed-shelf/

Kilgore, T. (2022, October 28). Dialysis company Davita Stock suffered worst day in 22 years after Big Profit Miss, disappointing outlook. MarketWatch. Retrieved December 10, 2022, from https://www.marketwatch.com/story/dialysis-company-davita-stock-suffering-worst-day-in-22-years-after-big-profit-miss-disappointing-outlook-11666983580

Laboratory Corporation of America Holdings. (2022, October 27). Form 8‐K. Retrieved from https://ir.labcorp.com/static-files/1be22ad3-0829-466d-8b9e-b9299ca5a8d3

Zacks Equity Research. (2022, December 9). Here's Why Investors Should Retain LabCorp (LH) Stock for Now. Retrieved from https://www.nasdaq.com/articles/heres-why-investors-should-retain-labcorp-lh-stock-for-now-0

Public

,

Andrew Morrissey

Nitin Narra

Lindsey Row

MBA 675

Team Project, Part One

St. Ambrose University

DaVita Inc., Laboratory Corporation of America Holdings (LabCorp), and Quest Diagnostics are three leading companies in the healthcare facilities and services industry. The following is an analysis of each company based on its financial strengths and weaknesses, an analysis of industry strengths and weaknesses and lastly, a comparative ranking of each companies’ stock performances in the secondary market.

In 2021, DaVita Inc’s operating income was $1.797 billion, operating cash flow from continuing operations was $1.931 billion, and free cash flow from continuing operations was $1.133 billion. DaVita invested $407 million in acquisitions and development in their businesses and $1.546 billion on repurchases of nearly 14 million shares of their common stock, reducing their shares outstanding by more than 11 percent since the beginning of the year. When looking at the raw financial statements, you can see that revenue is gradually increasing per year. Also, gross profit has seen gradual increases over the past couple years.

DaVita’s biggest strength was its growth in net investment income. This number on the income statement was very poor in 2017 and 2018. DaVita has shown a massive jump in this area, and it will only bring more benefits to their company. Net investment indicates how much a company is spending to maintain and improve its operations. If net investment is positive, the company is expanding its capacity.

Operating expense is something that DaVita may need to look into if it keeps getting larger. If operating costs become too high, management may need to increase the price of their products in order to maintain profitability. DaVita could risk losing customers to competitors who are able to produce similar goods at a lower price point.

The total contractual obligation includes non refundable amounts a lessee is contractually obligated to pay to the lessor. DaVita is obligated to pay a lot of money to others in the forthcoming future. There will obviously always be money put towards this account, but this amount must come down otherwise this weakness could be exploited in the future.

LapCorp reported a gross profit of $56,243 billion, an increase of 33.34 percent from the previous year. The Company also reported a total revenue of $16,120.9 billion in 2021, an increase of 13.39 percent from the previous year. These figures can show an increase in demand for the Company’s products and services. Additionally, total operating cash flow for 2021 was $3,109.6 billion, an increase of 31.33 percent from 2020. Investments made by the company can also be attributed to these gains.

Cash and cash equivalents for 2021 was reported at 14,727 billion, an increase of 10.31 percent from the previous year. Net Property, Plant and Equipment (PP&E) in 2021 was $28,154 billion, an increase of 3.05 percent from the previous year. An increase in PPE makes sense when presented with the Company’s increase in revenue, more PP&E is needed for expansion in services and clients. Additionally, total liabilities decrease by over 10 percent in 2021 compared to 2020 (Laboratory Corporation of America Holdings, 2022).

LabCorp inventory in 2021 decreased by 5.43 percent. Given the increase in total revenue it is interesting to see that the Company is essentially “doing more” with less. This may be attributed to a change in the business model to a more service-based menu for clients but could also indicate unsustainable practices. Accumulated depreciation increased by 8.71 percent in 2021 compared to the previous year. This creates a larger liability for LabCorp.

LabCorp reported a total revenue of $16,120.9 billion in 2021 (increase of 13.39 percent from the previous year) total operating profit of $3,302.6 billion in 2021 (increase of 10.73 percent from the previous year) and total liabilities of $10, 112 billion in 2021 (decrease of 5.93 percent from the previous year).

Lastly, Quest Diagnostics' gross profit was $4,209,000 billion, a -6.462 percent decrease from the previous year. Furthermore, the company recorded 2021 total revenues of $1.078 billion, a drop from the previous year of -1.909 percent. These numbers can indicate a decline in consumer interest in the company's goods and services. Additionally, operational cash flow for 2021 increased by 20.80 percent from 2020 to $2.381 million. These benefits might also be attributable to investments made by the business.

The amount of cash and cash equivalents recorded for 2021 was $8.72 million, a 24.6 percent decrease from the previous year. In 2021, net property, plant, and equipment (PP&E) increased 3.27 percent to $2,304 million. With the company's income rising, a rise in PPE makes sense because more PP&E is required to expand services and clientele. Furthermore, total liabilities fall by more than 1.20 percent in 2021 compared to 2020. (Quest Diagnostics, 2020).

In 2021, inventory fell by 6.72 percent. The company is effectively "doing worse" with less given the decline in overall revenue.This may be explained by a shift in the company model to a menu that focuses more on customer service, but it could also be a sign of unsustainably aggressive business methods. In 2021, compared to the previous year, accumulated depreciation grew by 3.208 percent. As a result, the company now has a bigger obligation.

Quest Diagnostics reported a total revenue of $1,078,8 billion in 2021 (decrease of -1.909 percent from the previous year), total operating profit of $2,381 million in 2021 (increase of 20.8 percent from the previous year) and total liabilities of $70,49 million in 2021 (decrease of -1.20 percent from the previous year).

Healthcare services is one of the largest and fastest growing industries (Stasha, 2022). In recent years the industry has been largely impacted by the coronavirus pandemic. The pandemic identified the ability of many companies to provide telehealth/virtual services which expanded opportunities to serve more clients. Additionally, healthcare companies have the ability to diversify their offerings (For example, LabCorp offers drug research and development, manufactures testing supplies and more). While LabCorp has found success diversifying its offering, other companies find success in specialization.

For example, DaVita is known specifically for providing kidney care, which is an area that separates themselves from many others in the industry. There are many organizations that provide health care services, so being able to separate yourself from others with special expertise and experience is key.

In order to enhance outcomes for patients, healthcare systems, and companies, efficiency is necessary to regulate procedures and organizational structure. The functionality of the latest machinery is a wonderful asset for healthcare organizations since it not just provides significant reliability of care but also reduces costs. To benefit individuals, the healthcare system uses a wide range of professional tools, gadgets, and medicines in research laboratories, health care facilities, and centers.

Conversely, as the industry grows it has proven difficult to recruit and retain the necessary talent to maintain these advances in technology and expanded services. “A Sept. 21 MGMA Stat poll found that 73 percent of medical practices reported “staffing” as the biggest pandemic challenge heading into 2022,” (Medical Group Management Association, 2021). Advances in technology, as well as a myriad of factors mean that healthcare systems have large, fixed expenses, which often continue, making it challenging to keep finances flexible. Tariffs also greatly impact the industry’s supply chains on a global scale (Florida Tech Online, 2022).

As of October 26, 2022, LabCorp was listed at $231,96 per share, Quest Diagnostics at $143.51 per share and DaVita at $96.99 per share. The market expected LabCorp (LH) to deliver a year-over-year decline in earnings on lower revenues when it reports results for the quarter ended September 2022. This was consistent with LabCorp’s earnings call, released on October 27, 2022 (LabCorp, 2022).

DaVita HealthCare (DVA) came out with quarterly earnings of $1.45 per share, missing the Zacks Consensus Estimate of $1.65 per share. This compares to earnings of $2.36 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of -12.12 percent. This has shown an enormous drop in their stock price. The stock is currently down $24.09 as of October 28, 2022. DaVita HealthCare, which belongs to the Zacks Medical – Outpatient and Home Healthcare industry, posted revenues of $2.95 billion for the quarter ended September 2022, missing the Zacks Consensus Estimate by 1.08 percent. This compares to year-ago revenues of $2.94 billion. The company has topped consensus revenue estimates just once over the last four quarters (Yahoo! Finance, 2022).

Results for the three months ending September 2022 have been released by Quest Diagnostics, and they show declining profits and revenue compared to the same period last year. The average EPS prediction for the fiscal quarter ending December 2022 has fallen over the previous week from 1.96 to 1.9 (3.06 percent) and over the span of a month from 1.94 to 1.9 (2.06 percent) (NASDAQ, 2022).

To establish consistency, each company’s market ranking was based on the company’s debt-to-equity ratio. Debt-to-equity ratio is an important metric in corporate finance. It is a measure of the degree to which a company is financing its operations with debt rather than its own resources. According to 2021 financial statements from Morning Star, the market ranking of these companies based on debt-to-equity ratios is the following (MorningStar, 2022):

1. LabCorp (LH) , .70

2. Quest Diagnostics (DGX)

3. DaVita (DVA)

References

DaVita, Inc. Financial Information. Morningstar, Inc. (n.d.). Retrieved October 28, 2022, from https://www.morningstar.com/stocks/xnys/dva/financials

Financial challenges in Healthcare. Florida Tech Online. (2022, January 7). Retrieved October 30, 2022, from https://www.floridatechonline.com/blog/healthcare-management/financial-challenges-in-healthcare/

Labcorp announces 2022 third quarter results. Labcorp. (2022, October 27). Retrieved October 30, 2022, from https://ir.labcorp.com/news-releases/news-release-details/labcorp-announces-2022-third-quarter-results

Laboratory Corp of America Holdings LH Financial Information. Morningstar, Inc. (n.d.). Retrieved October 28, 2022, from https://www.morningstar.com/stocks/xnys/lh/financials

Laboratory Corporation of America Holdings. (2022, February 25). Form 10‐K. Retrieved from https://ir.labcorp.com/sec-filings/sec-filing/10-k/0000920148-22-000015

Medical Group Management Association (2021, September 21). Staffing, uncertainty among top pandemic challenges for medical groups heading into 2022. | Medical Group Management Association | Retrieved October 30, 2022, from https://www.mgma.com/data/data-stories/staffing,-uncertainty-among-top-pandemic-challenge

Stasha, S. (2022, September 29). Healthcare statistics for 2021: Policy advice. Healthcare statistics for 2021 | Policy Advice. Retrieved October 30, 2022, from https://policyadvice.net/insurance/insights/healthcare-statistics/

Quest Diagnostics Incorporated Common Stock (DGX) Earnings Report Date | Nasdaq. (2022). Nasdaq.com. https://www.nasdaq.com/market-activity/stocks/dgx/earnings

Quest Diagnostics Financial Information. Morningstar, Inc. (n.d.). Retrieved October 28, 2022, from https://www.morningstar.com/stocks/xnys/dgx/financials

Zacks Equity Research. Davita Healthcare (DVA) Q3 earnings and revenues lag estimates. Yahoo! Finance. Retrieved October 28, 2022, from https://finance.yahoo.com/news/davita-healthcare-dva-q3-earnings-114511139.html

,

Andrew Morrissey

Nitin Narra

Lindsey Row

MBA 675

Team Project, Part Two

St. Ambrose University

DaVita Inc., Laboratory Corporation of America Holdings (LabCorp), and Quest Diagnostics are three leading companies in the healthcare facilities and services industry. The following is an analysis of each company’s market value ratios (or valuation multiples) followed by an overall ranking of the companies by market performance and value for shareholders. “Market value ratios relate a firm’s stock price to its earnings, cash flow, and book value per share. Market value ratios are a way to measure the value of a company’s stock relative to that of another company,” (Brigham & Ehrhardt, 2020, p. 117). In order to establish consistency throughout our analysis, all market value ratios were sourced on the same day (November 1, 2022) and from the same sources (Stock Analysis, MacroTrends and Zacks Investment Research).

Price/earnings (P/E) ratio is calculated by dividing a company’s latest closing price by its most recent earnings-per-share (EPS). The P/E ratio is a simple way to assess whether a stock is over or undervalued and is the most widely used valuation measure. The following P/E ratios were sourced on November 1, 2022 from Stock Analysis. DaVita’s P/E ratio was 9.56 (Stock Analysis, 2022). DaVita is on the lower end when compared to the average P/E ratio for S&P 500 companies, which is 25 (Murphy, 2022). This can be seen as an attractive valuation to investors, as having a high P/E ratio could mean the stock is currently being overvalued. LabCorp’s P/E ratio was 11.95 (Stock Analysis, 2022). While still lower than the industry average, LabCorp’s P/E ratio can indicate that LabCorp is a riskier investment but there are also strong growth prospects. Lastly, Quest Diagnostics’ P/E ratio was 14.05 (Stock Analysis, 2022). Again, this is lower than the S&P average but the highest among our companies. A higher P/E is typically better for the firm but poses more risk or overvaluation for investors.

Price/free cash flow (P/FCF) ratio is calculated by dividing a company’s latest price-per-share by its free cash flow-per-share. The P/FCF ratio examines a company’s ability to generate free cash flow which affects its stock prices. The average P/FCF for S&P 500 companies is 14.05. Similar to the P/E ratio, a value less than this average is generally considered good. The following P/FCF ratios were sourced on November 1, 2022 from Stock Analysis. DaVita’s P/FCF ratio was 5.5 (Stock Analysis, 2022). This shows that DaVita’s stock is cheap in relation to its free cash flow. Quest Diagnostics’ P/FCF was 11.99 (Stock Analysis, 2022), which shows that its stock is moderately priced in relation to its free cash flow. Lastly, LabCorp’s P/FCF was 13.58 (Stock Analysis, 2022). While this ratio is still considered favorable because it is below the average, this does indicate that LabCorp stock could be overvalued. These ratios align with each company’s price-per-share, with DaVita stock being the lowest ($70.38 at closing) and LabCorp’s the highest ($222.55 at closing) of the group.

EV/EBITDA is calculated by dividing a company’s enterprise value by its EBITDA (Earnings before interest, taxes, depreciation, and amortization value). This valuation ratio assesses a company’s value, including debt and liabilities, to true cash earnings. EV/EBITDA is helpful when comparing companies within the same industry. Generally, an EV/EBITDA below 10 is considered favorable (Maverick, 2022). The higher a company’s EV/EBITDA, its stock can be viewed as overpriced. The following EV/EBITDA ratios were sourced on November 1, 2022 from Stock Analysis. LabCorp’s EV/EBITDA was 7.97, DaVita’s was 9.14 and Quest Diagnostic’s was 9.21 (Stock Analysis, 2022). Each company’s ratios would be considered healthy and a good investment for shareholders.

Market/book (M/B) ratio (or price/book ratio) is another helpful ratio for investors. M/B ratio is calculated by dividing a company’s market price-per-share by its book value-per-share. M/B ratio takes into account a company’s past and present through the cumulative amount stockholders have invested and investor’s expectations of future cash flows (Brigham & Ehrhardt, 2020, p. 119). The following M/B ratios were sourced on November 1, 2022 from MacroTrends. LabCorp’s M/B ratio was 2.04, Quest Diagnostics was 2.59 and DaVita’s was 10.6 (MacroTrends, 2022). While all values are above 1 (which is generally favorable), DaVita’s M/B ratio is more than triple those in its peer group. This is not a good look for DaVita as it shows the market value could be too high and may be ready for a fall.

Lastly, price/earnings-to-growth (P/E/G) ratio is calculated by dividing a company’s P/E ratio by its annual EPS growth. P/E/G ratio can help determine the relative trade-off between the price of a stock, the earnings generated per share, and the company's expected growth. Generally, a P/E/G ratio under 1 is considered favorable. The following P/E/G ratios were sourced on November 1, 2022 from Zacks Investment Research. Quest Diagnostics’ P/E/G ratio was 0.76, LabCorp’s was 1.61 and DaVita’s was 1.64 (Zacks Investment Research, 2022). From this we can assume that LabCorp and DaVita stock could be overvalued, which is consistent with previous valuation ratio findings.

In order to efficiently rank our companies, we first gave each company a ranking of 1-3 for each individual ratio, with 1 being “first” or the most favorable and 3 being “last” or the least favorable. Scores for each company were then added together for a final number, with the lowest score being most favorable. In total, LabCorp received a score of 9, Quest Diagnostics received a score of 10 and DaVita received a score of 11. We find that our rankings for Part Two are the consistent with our findings in Part One, which is as follows:

1. LabCorp

2. Quest Diagnostics

3. DaVita

References

Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory & practice. Cengage Learning.

DaVita, Inc. (DVA) financial ratios and metrics. (n.d.). Retrieved November 1, 2022, from https://stockanalysis.com/stocks/dva/financials/ratios/

DaVita, Inc. Price to Book Ratio 2010-2022: DVA. Macrotrends. (n.d.). Retrieved November 1, 2022, from https://www.macrotrends.net/stocks/charts/dva/davita/price-book

Laboratory Corporation of America Holdings (LH) financial ratios and metrics. (n.d.). Retrieved November 1, 2022, from https://stockanalysis.com/stocks/lh/financials/ratios/

Laboratory of America Holdings Price to Book Ratio 2010-2022: LH. Macrotrends. (n.d.). Retrieved November 1, 2022, from <a rel='nofollow' target='_blank' href='https://www.macrotrends.net/stocks/charts/LH/

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