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DaVita (DVA) to Report Q4 Earnings: What's in the Cards?

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DaVita HealthCare Partners Inc. (DVA - Free Report) is scheduled to report fourth-quarter 2017 results on Feb 13, after the market closes.

In the third quarter, the company reported adjusted earnings of 81 cents per share, which missed the Zacks Consensus Estimate of 94 cents. Earnings deteriorated 14.7% on a year-over-year basis. Further, revenues in the last quarter improved 5.1% year over year to $3.92 billion, beating the Zacks Consensus Estimate of $3.89 billion. However, the company reported an average negative earnings surprise of 1.9% in the trailing four quarters.

Over the last year, shares of DaVita have outperformed the broader industry. The stock has returned 13.3% against the industry’s decline of 5.5%.

 

 

Let’s take a look at how things are shaping up prior to the announcement.

Factors to Consider

Acquisition-driven Growth: Acquiring dialysis centers and businesses that own and operate similar centers as well as other ancillary services is DaVita’s preferred business strategy. These strategies have bolstered the company’s top line.

In 2017, DaVita announced that HealthCare Partners, a unit within its medical group, has entered into a strategic partnership with Cigna, a global health insurance service company that offers health, dental, supplemental insurance and Medicare plans to individuals, families and businesses.

While the acquisitions are expected to widen the company’s client base in the fourth quarter, the merger augmented its primary care and specialty physician services as well as hospital and other healthcare services.

Overseas Growth: DaVita is steadily expanding in the international markets. In the past few years, the company has strengthened its position in the emerging and developing markets of Brazil, China, Colombia, Germany, India, Malaysia, Netherlands, Poland, Portugal and Saudi Arabia through strategic alliances as well as acquisitions of dialysis centers. These are expected to help DaVita deliver efficient patient care.

View for Q4 and 2017: The company expects adjusted operating income in the Kidney Care segment in the range of $1.57-$1.6 billion compared with the previous range of $1.565-$1.625 billion. The range has been tightened as hurricanes are likely to have negative impact on earnings in the fourth quarter.

The Zacks Consensus Estimate for the current quarter is pinned at $3.9 billion, reflecting year-over-year growth of 4.9%. However, the Zacks Consensus Estimate of 91 cents for adjusted earnings per share, shows year-over-year decline of 7.1% in growth.

Consequently, management is not upbeat about earnings in the upcoming quarter.

Labor Union Woes: In California, labor unions proposed a ballot initiative that is likely to alter DaVita’s footprint in the state. If they proceed with the initiative, the company might have to incur significant onetime costs in 2018 to support their advocacy efforts. This is likely to dampen the company’s top-line growth in the fourth quarter.

Debt Dependence: Debt refinancing continues to keep DaVita’s financial leverage at high levels. The company depends upon future borrowings to pay debt and fund other liquidity requirements. Additional debts in connection with the HealthCare Partners’ transaction have elevated the outstanding debt levels and are expected to increase borrowing costs.

Plagued by the above headwinds, DaVita is unlikely to deliver an earnings beat in fourth-quarter.

Earnings Whispers

Our proven model does not indicate earnings beat for DaVita HealthCare in this quarter. This is because a stock needs to have 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: DaVita has an earnings ESP of -2.2%%. 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 #2. Nevertheless, an unfavorable Earnings ESP makes surprise prediction difficult.

Stocks Worth a Look

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

AmerisourceBergen (ABC - Free Report) has an Earnings ESP of +1.40% and a Zacks Rank #3.

Centene (CNC - Free Report) has an Earnings ESP of +0.92% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cooper Companies (COO - Free Report) has an Earnings ESP of +1.18% and a Zacks Rank #3.

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