DaVIta (DVA) To Report Q1 Earnings: Is A Beat In Store?

DaVita Inc.’s (NYSE:DVA) first-quarter 2018 results are scheduled to release on May 3, after the market closes. DaVita’s Dialysis and related lab services business segment has been a consistent driver of revenues for the company. Surging acquisition of dialysis centers also adds to the positives.

Notably, in the fourth quarter of 2017, the company reported adjusted operating earnings of 92 cents per share, beating the Zacks Consensus Estimate of 91 cents. However, earnings declined 6.1% on a year-over-year basis.

Meanwhile, revenues in the last reported quarter increased 3% year over year to $2.78 billion but missed the Zacks Consensus Estimate of $3.89 billion.

For the quarter under review, the Zacks Consensus Estimate for revenues is pegged at $2.96 billion, reflecting a year-over-year decline of 20%. The same for earnings per share is projected at 92 cents, indicating year-over-year growth of 16.5%. The company delivered an average negative earnings surprise of 3.5% in the trailing four quarters.

DaVita Inc. Price and EPS Surprise

DaVita Inc. Price and EPS Surprise | DaVita Inc. Quote

Let’s delve into other factors that are likely to impact DaVita’s first-quarter 2018 results.

Kidney Care Business & Dialysis Centers to Drive Q1

DaVita Medical Group & Kidney Care, also known as DMG, provides integrated care management as an operating division of the company and focuses on delivering healthcare through a broad range of services.

In 2017, Kidney Care business witnessed several prospects. Adjusted operating income in the segment was $1.616 billion, up from the adjusted guidance of $1.57-$1.6 billion in 2017. Lately, the company, in collaboration with Texas-based Methodist Specialty and Transplant Hospital, announced the launch of the Transplant Waitlist Support Program. The aim is to help keep waitlisted patients transplant-ready by deploying a technology-enabled solution.

Developments like these are likely to help DaVita in registering solid quarterly results.

In fourth-quarter 2017, DaVita acquired nine dialysis centers, opened 36 new centers and closed four in the United States. DaVita also acquired six dialysis centers, opened two centers and closed one center outside the United States. However, the Zacks Consensus Estimate for the number of dialysis centers in the current quarter is pegged at 2.686, down 2.2% sequentially.

Other Factors at Play

Guidance

For 2018, the company projects Kidney Care consolidated operating income in the range of $1.5-$1.6 billion. Operating cash flow from continuing operations is estimated in the band of $1.4-$1.6 billion.

The effective tax rate is expected in the range of 26.5-27.5%.

A solid guidance such as this raises optimism in the company’s upcoming quarterly results.

Reimbursements

Calcimimetics, a drug used to treat mineral bone disease, just moved into dialysis reimbursement with introduction of an injectable drug called Presibib.

Though it is early to understand the full picture, the management is optimistic about its probable contributions to the quarterly results.

Acquisition Perils

With surging labor cost inflation, DaVita is likely to witness solid margin pressure in the traditional Medicare fee-for-service business.

The series of acquisitions of dialysis centers by DaVita may affect operations, debt-to-capital ratio, capital expenditures or other aspects of the business.

Further, joint ventures and minority investments inherently involve a lesser degree of control over business operations, thereby potentially increasing the financial, legal, operational and compliance risks associated with the joint venture or minority investment.

Our Model

Our quantitative model predicts an earnings beat for DaVIta in the upcoming quarterly results.

This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. It can be illustrated below:

Zacks ESP

Earnings ESP for DaVita is +1.64%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank

DaVIta carries a Zacks Rank #3.

Here are a few other medical stocks worth considering as they also have the right combination of elements to post an earnings beat.

The Cooper Companies, Inc. (NYSE:COO) has an Earnings ESP of +0.26% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teleflex Incorporated (NYSE:TFX) has an Earnings ESP of +0.58% and a Zacks Rank #3.

AbbVie Inc. (NYSE:ABBV) has an Earnings ESP of +0.06% and a Zacks Rank #3.

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