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

Zacks Equity Research

DaVita Inc. DVA is scheduled to release first-quarter 2019 results on May 7, after the closing bell.

In the last reported quarter, the company delivered a positive earnings surprise of 1.1%. However, it has an average four-quarter negative surprise of 3.4%.

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

Which Way are Q1 Estimates Treading?

For the first quarter, the Zacks Consensus Estimate for the top line is pegged at $2.80 billion, indicating a decline of 1.6% from the year-ago quarter. The consensus estimate for the bottom line is pegged at 95 cents, suggesting a fall of 9.5% from the year-ago reported figure.

DaVita Inc. Price and EPS Surprise


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

Factors to Influence Q1

As an operating division of DaVita, DaVita Kidney Care focuses on setting global standards for clinical, social and operational practices in kidney care. The company is expected to witness an increase in net dialysis and related lab patient service revenues in the to-be-reported quarter. This probable improvement is likely to drive the company’s top line in the first quarter.

Prudent buyouts of dialysis centers and businesses that own and operate dialysis centers as well as ancillary services is the one of the key strategies of the company. This in turn has been contributing to its revenues and is likely to impact in the first quarter results positively.

Moreover, the company is likely to report total U.S. dialysis treatments growth in the to-be-reported quarter. Per management, in 2019, the company projects U.S. total treatment volume growth in the range of 3-4% and U.S. revenue per treatment growth in the band of 0-1%. Based on this projection, the company is likely to witness favorable performance for total U.S. dialysis treatments in the upcoming quarterly results.

Steady expansion in the international markets through acquisitions and partnerships has contributed to a possible increase in international dialysis patient service and other revenues. Further, the company anticipates operating income from international operations in 2019 (excluding any impact from foreign exchange). Consequently, we expect to see a similar outcome in the first quarter.

However, due to an acquisition-driven strategy, DaVita might experience integration risks that can impact operations, which in turn will affect the to-be-reported quarter.

Also, a significant number of DaVita’s patients use Medicare or Medicaid programs. The overall increase in Medicare Advantage beneficiaries in the United Sates is likely to increase this percentage further. This in turn can put additional pressure on the company’s profitability, as inadequacy of government reimbursements could force it to close a number of centers.

What Our Quantitative Model Suggests

Per the proven Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

DaVita has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult.

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

Stocks Worth a Look

Here are some stocks worth considering from the broader medical space as these have the right combination of elements to beat on earnings this time around.

NanoString Technologies, Inc. NSTG has an Earnings ESP of +3.08% and a Zacks Rank #3.

Aurora Cannabis Inc. ACB has an Earnings ESP of +55.88% and a Zacks Rank #3.

STERIS plc STE has an Earnings ESP of +0.35% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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