Shares of DaVita (DVA) traded up 6.1% on Tuesday, April 2nd on a Medicare announcement and subsequent analyst upgrades. Medicare announced that is not likely to cut payments for the Medicare Advantage program through 2013 and 2014. The Centers for Medicare and Medicaid Services previously had announced Medicare Advantage payments could fall by more than 2% by 2014, but it is now expecting to increase payments by 3%.
Medicare Advantage payments are important to DaVita, as more than half of the recently-acquired Health Care Partners revenues are derived from Medicare Advantage Contracts. After the news, Piper Jaffray reiterated its BUY on DVA, with a price target of $134. Deutsche Bank subsequently upgrades the stock from HOLD to BUY, with a price target of $136, after recently downgrading the company over concerns about Medicare Advantage payments.
UASBIG currently has a BUY rating on DVA, with a price target of $131. We view this news as favorable and have a positive long-term outlook on the stock given the potential for HCP's geographic expansion and synergies between DVAs dialysis services and HCP's doctor network.