DaVita stock price forecast: Ozempic sell-off is an overreaction

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on Oct 25, 2023
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  • DaVita share price plunged hard as concerns about Ozempic continue.
  • Novo Nordisk believes that Ozempic can help to treat kidney disease.
  • Analysts and investors believe that DaVita will be disrupted by weight loss drugs.

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DaVita (NYSE: DVA) stock price has come under intense pressure in the past few days. The stock made a big dive on October 9th and crashed to a multi-month low of $71.45. While it has bounced back slightly, it remains 30% below the highest level this year. Similarly, Baxter, its close competitor, has plunged by over 34% from its July high.

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Wegovy and Ozempic threat

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DaVita is an American company that provides kidney treatment in the United States and other countries. Together with Fresenius Medical Group and Baxter, the company has a strong market share in kidney treatment in the US.

DaVita stock price crashed recently after the company became a threat from the fast-growing weight loss drugs. In a statement earlier this month, Novo Nordisk said that it was concluding its FLOW trial ahead of schedule. 

The company confirmed that Ozempic helped to slow the progression of Chronic Kidney Disease (CKD). it also said that the drug, because of its Semaglutide component, helped to reduce the risk of death linked to renal and heart challenges.

Therefore, the argument is that DaVita will see weaker revenue growth as patients switch to Ozempic. Others will move to other drugs like Wegovy, which have similar ingredients to Ozempic.

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Investors always overreact

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I believe that the situation is not as dire as it seems for DaVita and other kidney dialysis companies. Historically, investors tend to overreact when there is major news. For example, solar stocks like Sunrun and Enphase Energy jumped a few years ago as investors embraced ESG.

Similarly, stocks like Nvidia and C3.ai spiked this year because of their exposure to artificial intelligence (AI). Many EV stocks like Mullen Automotive, Rivian, Nio, and Xpeng soared as hopes of EVs rose.

DaVita business will likely continue thriving in the long term because of how complicated the kidney disease industry is. The most recent results showed that the company’s revenue jumped to $3 billion while its operating income rose to $405 million. It served over 7.2 million in the last quarter.

Most importantly, the company boosted its forward guidance. It sees its revenue for the third quarter rising to between $1.56 billion and $1.67 billion and its free cash flow being between $850 million and $1.1 billion. 

The case for DaVita stock

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Davita stock

DVA chart by TradingView

Therefore, I believe that the DaVita stock price will do well over time. It is a leading company with over 7 million customers every quarter. It is also in an industry that will continue growing as the population ages and rises.

A recent study showed that the dialysis market was $95 billion in 2022 and is expected to grow by 5% by 2030. Further, it also worked on its balance sheet by refinancing its existing Term Loan A with a new $1.2 billion. This means that the firm has no major financing challenges as interest rates rise.

Therefore, the outlook for DaVita stock price is bullish for now. I suspect that it will fill the gap it formed earlier this month. If this happens, the shares will likely continue rising as buyers target the key psychological level at $90.

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