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Bear of the Day

DaVita HealthCare Partners (DVA - Free Report) became a Zacks #4 Rank Sell in mid-July as analysts began lowering estimates before the company's Q2 report.

On August 8 the company delivered a 3% EPS beat but disappointed with lowered guidance for the year due to difficulties with a recent acquisition.

Since the report, shares have tumbled 13% and most analysts have moved their estimates down again, pushing the stock into the cellar of the Zacks Rank.

The Business of Dialysis

DaVita HealthCare Partners is the second-largest US provider of dialysis services to patients with chronic kidney failure and end stage renal disease. They serve roughly 180,000 patients through a network of 2,179 owned and managed dialysis facilities.

The company offers outpatient, home-based, and hospital inpatient hemodialysis services, ESRD laboratory services and provides management and administrative services to outpatient dialysis centers.

DaVita had revenues of $13.78 billion in 2015 and trailing 12-month (TTM) sales are at $14.36 billion as of June 30. DaVita HealthCare Partners Inc., formerly known as DaVita Inc., is headquartered in Denver, Colorado. With the acquisition of HealthCare Partners (HCP), the company became the largest operator of medical groups and physician networks in the US.

The Quarter Analysts Saw Coming... Mostly

Total revenue increased 8.8% year over year to approximately $3.72 billion and narrowly surpassed the Zacks Consensus Estimate by 1.2%. The year-over-year improvement was mainly attributable to a rise in patient service revenues.

Analysts knew that the HealthCare Partners acquisition was not going according to management's plans. That's why they were lowering estimates in July. But they weren't expecting a $70 million drop in segment guidance.

Here's how analysts at Raymond James broke down the news...

Drivers behind HCP’s lowered 2016 guidance include: 1) fee for service revenue growth of 3% vs. management 6% target, 2) an overestimation of Medicare Advantage reconciliation payments; 3) Medicare Advantage mentorship growth lower than expected and; 4) an acceleration in the re-branding of HCP to the DaVita Medical Group - $5/$10 million more than expected.

And here was the fallout for EPS estimates...

In the last 30 days, the 2016 full-year consensus fell from $3.95 to $3.77, representing negative annual growth of -1.7%.

2017 consensus profit projections dropped from $4.42 to $4.18, for 11% growth if all goes well.

DaVita is a strong business and clear leader in its industry. But until the estimates picture turns around, it's probably best to stay on the sidelines.

The Zacks Rank warned you in July before the drop and it will let you know when it's safe again.

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