Executive Summary / Key Takeaways

• Operational Resilience Amidst Headwinds: DaVita demonstrated strong operational resilience in 2025, reaffirming its full-year adjusted operating income and EPS guidance despite significant challenges including a severe flu season, a peritoneal dialysis supply shortage, and a cybersecurity incident. This resilience is underpinned by effective cost management and strategic investments.
• Strategic Shift Towards Integrated Kidney Care and Technology: The company is actively transforming beyond traditional dialysis, investing heavily in its Integrated Kidney Care (IKC) business and advanced technology, including a next-generation clinical platform and AI solutions, to drive long-term efficiencies and enhance patient outcomes.
• Innovation in Clinical Outcomes: DaVita Clinical Research (DCR) is at the forefront of evaluating new therapies like middle molecule clearance and the adoption of GLP-1s, with the potential to significantly improve patient longevity and quality of life, positioning DaVita as a leader in kidney care innovation.
• Disciplined Capital Allocation and Shareholder Returns: DaVita maintains a consistent capital allocation strategy, prioritizing capital-efficient growth and returning excess capital to shareholders through substantial share repurchases, while managing its leverage within a targeted range.
• Evolving Competitive and Regulatory Landscape: The company operates in a dynamic environment marked by intense competition, policy uncertainties around premium tax credits and Medicare Advantage, and inflationary pressures, necessitating continuous adaptation and strategic positioning.

A Foundation of Care and Strategic Evolution

DaVita Inc. (NYSE:DVA) stands as a leading provider of kidney dialysis services in the United States, a position forged over its 25-year history through a relentless focus on patient care and strategic expansion. The company has evolved significantly from a traditional dialysis provider to a comprehensive kidney care enterprise, addressing the full spectrum of the kidney disease journey. This transformation is evident in its pioneering efforts in home dialysis, where over 80% of home patients now utilize connected cyclers for remote monitoring, and its "Kidney Smart" education program, which has reached over 300,000 individuals with chronic kidney disease (CKD) education. DaVita's strategic narrative is one of continuous adaptation and investment, aiming to not only deliver life-sustaining treatment but also to innovate for a healthier future for its patients.

The broader industry landscape is characterized by an aging population, which serves as a fundamental demand driver for dialysis services. However, it is also a sector undergoing significant shifts towards value-based care models and facing increasing technological disruption. DaVita operates within this complex environment, balancing its core U.S. dialysis operations with strategic growth in Integrated Kidney Care (IKC) and international markets. The company's ability to navigate these dynamics, leverage its operational strengths, and invest in future-proof technologies forms the crux of its investment thesis.

Technological Edge and Clinical Innovation

DaVita's commitment to technological differentiation is a cornerstone of its strategy, aiming to enhance clinical outcomes, improve operational efficiency, and strengthen its competitive moat. The company has made substantial investments in its technology infrastructure, including the rollout of a next-generation clinical platform, ongoing upgrades to its revenue operations technology, and the adoption of artificial intelligence (AI) solutions across its platform. These investments are critical to advancing clinical care, improving the experience of patients and teammates, and driving long-term cost efficiencies. While these projects contribute to higher general and administrative (G&A) growth in the short term, they are viewed as essential for future performance.

A key area of technological and clinical innovation is DaVita Clinical Research (DCR). Powered by a dedicated team of medical directors and data scientists, DCR leverages one of the country's largest patient data sources to advance kidney care research. DCR maintains over 250 research sites in the U.S., has conducted more than 500 clinical trials, and contributed to over 700 clinical publications, leading to FDA approval for dozens of ESKD drugs. Currently, DCR is evaluating middle molecule clearance using middle cut-off dialyzers, a significant initiative with the potential to represent a meaningful step in advancing patient outcomes. The clinical and operational processes behind middle molecule clearance are expected to take approximately three years to yield results, yet the potential to enhance patient lives is meaningful and exciting. Furthermore, DaVita is monitoring the adoption of new drug classes like GLP-1s and SGLT2s, which offer the potential to extend life and ease recovery from dialysis, although their current impact on DaVita's patient population is considered low due to low prevalence in advanced CKD patients and adherence rates. These technological and clinical advancements are crucial for DaVita to maintain its leadership, attract and retain patients, and drive efficiencies that translate into improved financial performance.

Operational Excellence and Financial Resilience

DaVita's financial performance in the third quarter of 2025 and year-to-date reflects a business demonstrating resilience amidst a challenging operating environment. Total revenues for the third quarter ended September 30, 2025, reached $3.42 billion, a 4.9% increase from $3.26 billion in the same period of 2024. For the nine months ended September 30, 2025, total revenues grew to $10.02 billion, up 5.3% from $9.52 billion in the prior year. This revenue growth was achieved despite U.S. treatment volume declining approximately 1.5% year-over-year in Q3 2025, primarily due to census trends influenced by higher mortality from a severe flu season, Hurricane Helene, and a cybersecurity incident.

The company's ability to manage costs effectively has been a key driver of its resilience. U.S. dialysis average patient service revenue per treatment increased by about $6 sequentially in Q3 2025, driven by rate increases, higher revenue from phosphate binders, and the negative impact of the cyber incident on Q2 revenue per treatment. Oral phosphate binders, incorporated into the ESRD PPS bundled payment on January 1, 2025, are expected to contribute positively to operating income, with a full-year 2025 contribution anticipated at the upper end of the $0 to $50 million guidance range. Patient care costs per treatment rose by approximately $5 sequentially in Q3 2025, mainly due to increased compensation and pharmaceutical costs, partially offset by reduced insurance costs. However, management noted that excluding the impact of phosphate binders, patient care costs continue to outperform original expectations.

Profitability metrics highlight the operational discipline. While total operating income for Q3 2025 saw a slight decline to $505.77 million from $534.88 million in Q3 2024, adjusted operating income for the nine months ended September 30, 2025, increased to $1.51 billion, up 1.2% from $1.49 billion in the prior year. The company's TTM Gross Profit Margin stands at 23.81%, Operating Profit Margin at 15.38%, and EBITDA Margin at 18.10%, demonstrating solid underlying profitability.

Liquidity and capital allocation remain robust. As of September 30, 2025, DaVita held $705.96 million in cash and cash equivalents and had an undrawn revolving line of credit of $1.50 billion.

The company's leverage ratio of 3.37x consolidated EBITDA is comfortably within its target range of 3 to 3.5x. DaVita continues its disciplined capital allocation strategy, including significant share repurchases. In Q3 2025, it repurchased 3.3 million shares at an average price of $140.67 per share, and the Board increased its share repurchase authorization by an additional $2.00 million in August 2025. This strategy aims to enhance shareholder value and achieve double-digit earnings per share growth.

Strategic Growth and Competitive Positioning

DaVita's strategic initiatives extend beyond its core U.S. dialysis business, focusing on Integrated Kidney Care (IKC) and international expansion to drive future growth. The IKC business provides integrated care and disease management services, including risk-based arrangements where DaVita assumes financial risk for patient care. As of September 30, 2025, IKC served approximately 64,900 patients in risk-based arrangements and an additional 9,400 patients in other integrated care arrangements. While IKC's revenue recognition is complex and subject to timing shifts, the company expects flat or better adjusted operating results in 2025 compared to 2024 and aims for breakeven by 2026. This segment is crucial for DaVita's long-term strategy, as it aligns with the broader healthcare shift towards value-based care.

Internationally, DaVita continues to expand its footprint. As of September 30, 2025, it operated 585 outpatient dialysis centers in 14 countries outside the U.S. A significant development was the acquisition of Fresenius Medical Care AG 's dialysis operations in Brazil, which closed on August 1, 2025, adding 59 international centers. This expansion contributes to international operating income growth, which is expected to see approximately $50 million of year-over-year adjusted OI growth in 2025.

In the competitive landscape, DaVita's extensive network of U.S. dialysis centers and strong brand recognition serve as significant competitive advantages. This dense network enhances patient accessibility and fosters loyalty, providing a unique value proposition in localized service delivery. This allows DaVita to effectively compete against global giants like Fresenius Medical Care AG (FMS), which, despite its broader global footprint and integrated supply chain, may face operational complexities in the U.S. that DaVita can exploit. While FMS often demonstrates greater international reach and product diversification, DaVita's focus on comprehensive kidney care programs and patient-centered operations provides a competitive edge in patient retention and service quality. DaVita's P/E ratio of 12.15 and PEG ratio of 0.9 suggest it is undervalued compared to the industry averages of 21.3 and 1.91, respectively.

Against medical device companies like Baxter International Inc. (BAX) and Abbott Laboratories (ABT), DaVita's service-based model offers a distinct advantage in building long-term patient relationships and providing end-to-end care. While BAX and ABT excel in product innovation and advanced dialysis devices, DaVita differentiates itself through operational execution and specialized administrative services. However, DaVita must continue to bolster its technological partnerships and R&D to counter the innovation strengths of these device-focused rivals. Compared to diversified healthcare conglomerates like UnitedHealth Group Incorporated (UNH), DaVita's specialized focus on kidney dialysis allows for deep expertise and potentially faster operational execution in its niche. While UNH benefits from a broader healthcare ecosystem and extensive data analytics, DaVita's integrated care arrangements aim to lead in patient-specific outcomes.

Outlook and Key Variables for 2026

DaVita has reaffirmed its full-year 2025 adjusted operating income guidance between $2.035 billion and $2.135 billion, and adjusted earnings per share guidance of $10.35 to $11.15. The implied guidance for Q4 2025 suggests an approximately $60 million sequential increase in operating income, driven by higher treatment volume (due to better treatment day mix), sequentially higher revenue per treatment (from vaccines and resolution of aged claims), and the timing of IKC revenue, partially offset by typical seasonal increases in patient care costs and G&A.

Looking ahead to 2026, several key variables will shape DaVita's performance. Volume is a significant swing factor; the company anticipates a structural improvement as one-time headwinds from Hurricane Helene, the severe flu season, and the cybersecurity incident are not expected to recur. These factors represented a 75 to 100 basis point headwind on 2025 volume, translating to a 50 to 75 basis point structural improvement in 2026 growth relative to 2025. Payer mix is another critical area, with ongoing policy debates around enhanced premium tax credits and the recalibration of the Medicare Advantage landscape. The potential expiration of enhanced premium tax credits could result in a cumulative operating income impact of $120 million over three years, with an estimated $40 million in year one (2026). The timing of IKC revenue recognition from the government's CKCC program also remains a variable that could shift between 2025 and 2026.

Despite these uncertainties, DaVita maintains confidence in its long-term ability to return to 2% volume growth and achieve 3% to 7% adjusted operating income growth. This outlook is supported by its ongoing investments in technology and clinical innovation, which are expected to drive efficiencies and improve patient outcomes over time.

Risks and Challenges

DaVita operates in a highly regulated and dynamic environment, facing several pertinent risks. The cybersecurity incident in April 2025, while largely remediated, incurred approximately $11.7 million in G&A charges in Q3 2025 and $24.2 million year-to-date, impacting billing, revenue collection, and patient census. Future risks include potential litigation, reputational harm, and regulatory actions. Government shutdowns and policy uncertainty pose ongoing threats, particularly regarding the extension of enhanced premium tax credits, which could reduce commercial health insurance enrollment and negatively impact revenue. The recalibration of the Medicare Advantage landscape also introduces volatility in payer mix and enrollment.

Elevated mortality rates among ESKD and CKD patients, a persistent issue since COVID-19, continue to impact treatment volumes. This is attributed to delayed care and more acutely sick individuals, rather than new drug classes like SGLT2s. Staffing and labor costs remain a concern due to inflationary pressures and increased union organizing activities, potentially impacting operating expenses. Finally, the complexity of IKC revenue recognition introduces inherent unpredictability in quarterly results due to measurement limitations and recognition constraints on value-based care contracts.

Conclusion

DaVita Inc. stands at a pivotal juncture, demonstrating remarkable resilience in the face of external shocks while strategically investing in its future. The company's third-quarter 2025 performance, coupled with its reaffirmed full-year guidance, underscores its operational excellence and disciplined cost management. DaVita's core investment thesis is rooted in its ability to leverage its extensive U.S. dialysis network, strong brand, and integrated care expertise to drive sustainable growth.

The strategic pivot towards Integrated Kidney Care and significant investments in advanced technology, including AI and innovative clinical research like middle molecule clearance, are critical differentiators that promise to enhance patient outcomes and secure long-term competitive advantages. While challenges such as volume headwinds, regulatory uncertainties, and inflationary pressures persist, DaVita's proactive approach to clinical innovation and its consistent capital allocation strategy, including robust share repurchases, position it to deliver compelling value to discerning investors. The company's ability to execute on its technological roadmap and navigate the evolving payer landscape will be key determinants of its continued success and its path to sustained double-digit EPS growth.