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DaVita HealthCare (DVA) Up 0.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for DaVita HealthCare (DVA - Free Report) . Shares have added about 0.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is DaVita HealthCare due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

DaVita Beats on Q2 Earnings, Reiterates FY22 Earnings Per Share View

DaVita delivered earnings per share of $2.30 in the second quarter of 2022, down 12.9% year over year. However, the figure exceeded the Zacks Consensus Estimate by 9%.

Our projection of earnings per share was $2.12.

Revenues in Detail

Revenues of $2.93 billion in the second quarter were up by 0.4% year over year. The figure, however, missed the Zacks Consensus Estimate by 0.3%.

The second-quarter revenue compares to our own estimate of $2.94 billion.

Management noted that the top line was primarily owing to normal seasonal improvements driven by patients meeting their co-insurance and deductibles; and the continued shift to Medicare Advantage plans. However, the quarterly revenues were negatively impacted by a seasonal decline in hospital inpatient dialysis treatments and a lower government rate related to the reinstatement of 1% Medicare sequestration beginning Apr 1.

Management also noted that excess mortality was down significantly from the sequentially last-reported quarter with the recession of the impact of the first Omicron surge.

Segment Details

The company’s dialysis patient service revenues were $2.81 billion, down by 0.3% year over year. Other revenues were $116.7 million, up 18.4% from the year-ago quarter’s figure.

This figure compares to our dialysis patient service revenues’ Q2 projection of $2.84 billion and $101.7 million, respectively.

Per management, total U.S. dialysis treatments for the second quarter were 7,269,160 or 93,194 per day, on average. This represents a per-day increase of 0.9% on a year-over-year basis.

As of Jun 30, 2022, DaVita provided dialysis services to around 243,700 patients at 3,159 outpatient dialysis centers, of which 2,810 are U.S. centers while 349 are located across 11 other countries.

During the second quarter of 2022, the company opened 18 dialysis centers and closed 17 in the United States. It also acquired two and opened one dialysis center outside the United States in the same period.

Margin Details

In the quarter under review, DaVita’s gross profit fell 4.3% to $909.9 million. Gross margin contracted 152 basis points (bps) to 31.1%.

We had projected 30.6% of gross margin for Q2.

General & administrative expenses climbed 5.7% to $315.2 million.

Adjusted operating profit totaled $594.8 million, reflecting 8.9% plunge from the prior-year quarter’s level. Adjusted operating margin in the second quarter contracted 207 bps to 20.3%.

Adjusted operating margin according to our model was 14.4% for Q2.

Financial Position

DaVita exited second-quarter 2022 with cash and cash equivalents, and short-term investments of $363.1 million compared with $346.9 million at the end of the first quarter. Total debt (including current portion) at the end of second-quarter 2022 was $9.26 billion, compared with $8.87 billion at the end of the first quarter.

Cumulative net cash flow from operating activities at the end of second-quarter 2022 was $510.3 million, compared with $834 million a year ago.

DaVita repurchased 3.9 million shares of its common stock for $370 million during the reported quarter. Management also informed that from Jun 30, 2022 to Jul 29, 2022, the company repurchased 0.9 million shares of its common stock for $75 million.

2022 Guidance

DaVita has reiterated its financial outlook for full-year 2022.

Adjusted earnings per share for the full year is still projected in the range of $7.50-$8.50. The Zacks Consensus Estimate for the same currently stands at $7.80.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -8.38% due to these changes.

VGM Scores

At this time, DaVita HealthCare has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise DaVita HealthCare has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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