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DaVita HealthCare (DVA) Down 11.9% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for DaVita HealthCare (DVA - Free Report) . Shares have lost about 11.9% in that time frame, underperforming the S&P 500.

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

DaVita's Q3 Earnings Lag Estimates, 2018 Guidance Lowered

DaVita reported third-quarter 2018 adjusted operating earnings per share of 56 cents, which missed the Zacks Consensus Estimate by 37.1%. The figure also declined 34.1% on a year-over-year basis.

Total revenues in the quarter improved 3% year over year to $2.85 billion, also missing the Zacks Consensus Estimate of $2.92 billion.

Per management, DaVita incurred additional expenses in the reported quarter which significantly impacted earnings.

These expenses include $45 million of advocacy costs in countering union policy efforts and equity compensation of $23 million. Additionally, the company recognized restructuring charges of $11 million and asset impairment charges of $6 million in the quarter.

Business Details

Net dialysis and related lab patient service revenues in the third quarter totaled $2.66 billion, up 8.9% on a year-over-year basis. Other revenues were $188.6 million, down a significant 41.6% year over year.

Per management, in the quarter under review, the company provided dialysis services to a total of 226,000 patients at 2,876 outpatient dialysis centers. Of these, 2,625 centers were located in the United States and 251 centers were in 10 countries outside. Moreover, DaVita opened a total of 47 new dialysis centers and acquired three dialysis centers in the United States.

However, DaVita posted lackluster results in the Kidney Care business in the quarter. Net consolidated revenues at the segment totaled $2.85 billion, down 1.4% year over year. Consolidated Kidney Care operating income was $289 million, down 34%. As an operating division of the company, DaVita Kidney Care focuses on setting worldwide standards for clinical, social and operational practices in kidney care.

U.S. dialysis and related lab services revenues grossed $2.58 billion, down 0.4% from the prior-year quarter. International dialysis patient service and other revenues totaled $113 million, up 5.6% year over year.

Share Repurchase Update

During the third quarter, DaVita repurchased a total of 4.8 million shares for approximately $344 million, at an average price of $70.86 a share.

As of Nov 5, 2018, DaVita repurchased 16.8 million shares for $1.15 billion on a year-to-date basis.

Financial Condition

DaVita exited the third quarter with operating cash flow of $362 million and free cash flow of $226 million.

Guidance

For 2018, DaVita expects Kidney Care adjusted consolidated operating income in the range of $1.5-$1.53 billion, lower than the earlier band of $1.5-$1.6 billion, which excluded advocacy costs.

Operating cash flow in 2018 is anticipated within $1.4-$1.6 billion.

Effective income tax rate on income from continuing operations attributable to the company is projected between 30.5% and 31.5% for 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.35% due to these changes.

VGM Scores

At this time, DaVita HealthCare has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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 B. 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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