Moving ahead with its debt restructuring activity, on Tuesday, DaVita Inc. (DVA) announced the pricing of $775 million principal amount of 6⅜% senior notes due 2018 and $775 million principal amount of 6⅝% senior notes due 2020 totaling $1.55 billion.

The net proceeds from the offering will be used to redeem another set of outstanding 6⅝% senior notes due 2013 and 7¼% senior subordinated notes due 2015.

DaVita has appointed Banc of America Securities LLC, an arm of Bank of America Corp. (BAC), J.P. Morgan Securities LLC of JP Morgan Chase & Co. (JPM), Credit Suisse Securities (USA) LLC of Credit Suisse Group (CS), Barclays Capital Inc. of Barclays plc (BCS), Goldman, Sachs & Co. of Goldman Sachs Group Inc. (GS) and Wells Fargo Securities LLC of Wells Fargo & Co. (WFC) as its joint book-running managers for the offering.

In addition, Credit Agricole Securities (USA) Inc., RBC Capital Markets Corp., Scotia Capital (USA) Inc. and SunTrust Robinson Humphrey Inc. are acting as co-managers for the offering.

Estimate Trend Revision

Over the last 30 days, 4 of 11 analysts covering the stock have decreased their estimates for the third quarter of 2010, with one upward revision. Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of $1.13 per share, which would be down by 6.5% from the year-ago quarter.

The higher number of downward estimate revisions for the third quarter indicates the likelihood of a negative trend in the performance of the stock in the near term.

With respect to earnings surprises, the stock has been almost steady over the last four quarters, with all three positive surprises. The average remained positive at 2.36%. This implies that DaVita has surpassed the Zacks Consensus Estimate by 2.36% over that period.

Overall, the headwinds from the debt refinancing coupled with the ongoing concerns related to payor mix and the uncertainties of operating under the new Medicare bundled payment system continue to raise caution on earnings volatility in the near-term. Nonetheless, with $550 million of expected free cash flow, the potential for meaningful mergers and acquisitions and the longer-term benefits of the bundle, we believe a downside from current levels is likely limited.
 
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