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What's in the Offing for DaVita (DVA) This Earnings Season?

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DaVita Inc.’s (DVA - Free Report) third-quarter 2018 results are scheduled to release on Nov 7, after market close. While the company’s Kidney Care business is expected to drive the top line, headwinds in the Rx and GranuFlo wings might be a concern.

Q2 Results at a Glance

In the last reported quarter, DaVita reported adjusted earnings of $1.05 per share, beating the Zacks Consensus Estimate of 97 cents.

Total revenues declined 25.5% year over year to $2.89 billion but beat the Zacks Consensus Estimate of $2.88 billion.

The company has a positive average earnings surprise of 2.4% for the trailing four quarters.

Which Way Are Estimates Treading?

For the quarter to be reported, the Zacks Consensus Estimate for earnings is pegged at 90 cents, reflecting year-over-year growth of 11.1%. The same for revenues stands at $2.92 billion, showing a year-over-year decline of 25.6%.

DaVita Inc. Price and EPS Surprise


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

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

Probable Gains From Kidney Care & Dialysis Businesses

As an operating division of DaVita, DaVita Kidney Care focuses on setting worldwide standards for clinical, social and operational practices in kidney care. It has also been consistently cushioning the company’s top line.

In the last reported quarter, Kidney Care revenues were $2.87 billion, up 7% year over year. Net dialysis and related lab patient service revenues totaled $2.67 billion, up 11.9% year over year.

Lately, DaVita opened a 150,000 square-foot campus for DaVita Labs in DeLand, FL, with a view to serve DaVita dialysis clinics and their patients. (Read More: DaVita Kidney Care Opens 150000-Square-Foot Campus in DeLand)

Although it is likely to have little impact on third-quarter results, it shows that management remains optimistic about the Kidney Care wing.

Possible Deterrents

DaVita is currently being plagued by headwinds related to DaVita Rx and GranuFlo units.

For investors’ notice, DaVita Rx is a full-service pharmacy specializing in kidney care and dedicated to the safety of patients. At the end of the last reported quarter, management at DaVita announced that certain unfavorable changes in the oral pharmacy space have hurt the economics of DaVita Rx.

Notably, for the second half of 2018, DaVita expects to incur an adjusted loss on DaVita Rx operations of $20 million to $35 million due to duplicative costs during the transition.

Additionally, a federal jury in Colorado handed down a negative verdict involving DaVita's use of GranuFlo, one of the components used to produce dialysis, by the end of the last reported quarter. This is likely to have a negative impact on the company’s customer base, which might also hurt the top line.

Lastly, the company incurred some additional costs in the first half of 2018 and expects such costs to be significantly higher in the third quarter.

What Does Our Model Say?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. However, this is not the case here.

Earnings ESP: DaVita has an Earnings ESP of 0.00%. 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.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

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.

Becton, Dickinson and Company (BDX - Free Report) has an Earnings ESP of +0.34% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Quidel Corporation (QDEL - Free Report) has an Earnings ESP of +10.55% and a Zacks Rank #3.

Patterson Companies (PDCO - Free Report) has an Earnings ESP of +0.82% and a Zacks Rank #3.

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