Will Q2 Earnings Hold A Surprise For Davita (DVA) Stock?

DaVita HealthCare Partners Inc. (NYSE:DVA) is set to report second-quarter 2016 results after the market closes on Aug 8. Last quarter, the company posted a positive earnings surprise of 5.75%. Let’s see how things are shaping up for this announcement.
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Factors to be Considered this Quarter

DaVita’s strategic acquisitions are likely have expanded its business and boosted its top line in the to-be-reported quarter. This is because the capital market conditions have eased and risks of uncertainty has been lowered to some extent.

Davita is likely to have witnessed better performance at Kidney Care in the second quarter due to the joint venture with Khazanah and Mitsui Khazanah the first quarter to grow Kidney Care business in Asia.

Home care programs are also likely have expanded in the second quarter. This, we expect, will result in top-line growth.

Initiatives taken to centralize national operation likely have contributed significantly to cost control. This in turn is expected to have resulted in leading to savings from scale and vendor consolidation.

Operating cash flow is expected to have remained strong in the quarter due to improved performance of the Kidney Care business.

The establishment of health insurance exchanges, which have been reducing the number of policyholders opting for commercial insurance, remains headwinds for DaVita.

Interest expenses are expected to have remained elevated owing to higher level of debt tapering margins.

With respect to the surprise trend, the company delivered positive surprises in all of the last four quarters with an average beat of 3.78%.

The company’s share price has been fluctuating over the last few days. We wait to see how the stock reacts to the quarterly results.

Earnings Whispers

Our proven model does not conclusively show that DaVita Healthcare is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.04%. This is because the Most Accurate estimate of $1 is pegged higher than the Zacks Consensus Estimate of 98 cents.

Zacks Rank: DaVita carries a Zacks Rank #4 (Sell). The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

Other Stocks to Consider

Here are three other stocks from the medical sector which you may want to consider as our model shows that even these have the right combination of elements to post an earnings beat this quarter:

Aliqua Biomedical Inc. (NASDAQ:ALQA) has an Earnings ESP of +4.17% and a Zacks Rank #3. The company is slated to report second-quarter earnings on Aug 9.

Alcobra Ltd. (NASDAQ:ADHD) has an Earnings ESP of +18.18% and a Zacks Rank #3. The company is slated to report second-quarter earnings on Aug 11.

Asterias Biotherapeutics, Inc. (NYSE:AST) has an Earnings ESP of +42.11% and a Zacks Rank #3. The company is expected to report second-quarter earnings on Aug 11.