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DaVita Issues Downbeat '17 View, Hurricanes Affect Q3 Results

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On Nov 13, we issued an updated research report on DaVita HealthCare Partners Inc. (DVA - Free Report) . The company recently concluded third-quarter 2017 on a mixed note. A slashed guidance for the full year hints at trouble down the road. The stock has a Zacks Rank #4 (Sell).

Hurricanes Harvey and Irma dealt a heavy blow to DaVita’s operating income in the third quarter. The company incurred a loss of $7 million owing to higher production costs and approximately $7 million because of disruption of the billing process. Third-quarter adjusted operating earnings of 81 cents per share missed the Zacks Consensus Estimate of 94 cents. Further, earnings declined 14.7% on a year-over-year basis.

Per management, hurricanes affected DaVita’s inorganic growth by approximately 25 basis points in the reported quarter. For the fourth quarter of 2017, management at DaVita expects hurricanes to the impact revenues by $2 million to $3 million.

Management’s tepid forecast for the full year adds to the concerns. DaVita expects adjusted consolidated operating income in the range of $1.620 billion to $1.685 billion for 2017, lower than the previously issued range of $1.675 billion to $1.775 billion. For the full year, the company expects adjusted consolidated operating income in the band of $50 million to $85 million, significantly lower than the previous guidance of $110 million to $150 million.

The lowered forecast failed to instill confidence in investors, resulting in a 4.2% decline in shares since the earnings release till yesterday’s close of $54.66. DaVita's share price movement has been also unfavorable on a year-to-date basis. The company has lost 14.9%, wider than the broader industry’s decline of 13.8%.

 

 

However, DaVita announced plans to restructure DaVita Medical Group with the elimination of 350 non-clinical positions. The company expects the resulting annualized savings to be approximately $40 million per year, starting 2018.

Stocks to Consider

A few better-ranked stocks in the broader medical sector are PetMed Express (PETS - Free Report) , Luminex Corporation (LMNX - Free Report) and IDEXX Laboratories (IDXX - Free Report) .

Notably, PetMed Express sports a Zacks Rank #1 (Strong Buy). The company has a long-term expected earnings growth rate of 10%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex represented a return of 6.4% over the last year. The stock has a Zacks Rank #1.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has climbed 39.2% over a year’s time and has a Zacks Rank #2 (Buy).

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