Shares of DaVita Inc. (NYSE:DVA) are down over 10% at $62 per share after an analyst downgrade. Gary Taylor, a Citigroup analyst, told clients in a note that shares of the company are near full value and that legal concerns for the company are beginning to take a toll.
“Recent legal developments modestly raise the level of uncertainty, but [this is] only one contributor to our rating change,” Taylor said. “Overall, we find it more difficult to argue for a premium valuation.”
Taylor mentioned two recent U.S. District Court rulings that will lead to at least one case against DaVita going to trial. DaVita is charged with overbilling the Medicare system and overusing the drug Epogen. Epogen is used to boost red blood cells for patients with kidney disease.
One case in particular charges DaVita with receiving Epogen at a 20% discount while still fully billing the government. DaVita also disclosed at a grand jury criminal probe by the U.S. Attorney in Denver.
“If the Denver grand jury were to issue criminal indictments of any key executives, we think the stock would trade materially lower,” Taylor wrote. “We cannot assign a probability but at this point the case does not have a material impact on our investment view.”
Under the False Claims Act, any damages that the company is ordered to pay could automatically be tripled.
DaVita Inc. is the largest U.S. operator of renal centers with over nearly 1700 centers across the U.S.