A month has gone by since the las t earnings report for DaVita HealthCare (DVA). Shares have lost about 7.8% 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 recen t earnings report in order to get a better handle on the important drivers.
DaVita Q4 Earnings Beat on Increasing Dialysis Services
DaVita reported fourth-quarter 2018 adjusted earnings per share (EPS) of 90 cents, beating the Zacks Consensus Estimate by a penny. However, the figure declined 2.2% on a year-over-year basis.
Total revenues in the quarter improved 1.4% year over year to $2.82 billion, missing the Zacks Consensus Estimate of $2.99 billion.
Per management, DaVita incurred additional expenses in the fourth quarter which impacted results. These expenses include $30 million of advocacy costs in countering union policy efforts, including ballot initiatives.
In the quarter under review, DaVita's adjusted operating income totaled $370 million, down 14% year over year.
Net dialysis and related lab patient service revenues in the fourth quarter totaled $2.72 billion, up 10.2% on a year-over-year basis. Other revenues were $105.1 million, down a significant 66.7% year over year.
Per management, total U.S. dialysis treatments for the fourth quarter of 2018 were 7,552,412, or 95,119 treatments per day. This represents a per-day increase of 3.1% from the fourth quarter of 2017.
Moreover, the company provided dialysis services at 2,905 outpatient dialysis centers, of which 2,664 centers were located in the United States and 241 in nine countries outside the United States.
U.S. dialysis and related lab services revenues grossed $2.63 billion, up 10% from the prior-year quarter. International dialysis patient service and other revenues totaled $124 million, up 30.5% year over year.
For investors' notice, the company is on track to divest its major segment - DaVita Medical Group (DMG) - to Optum, a subsidiary of UnitedHealth Group Inc. Notably, the purchase price has been reduced to $4.3 billion from $4.9 billion. This transaction is subject to regulatory approvals and other customary closing conditions. The operations of the DMG business have been reported as discontinued.
Resultantly, the company incurred an additional charge of $252 million on the DMG business and a $42-million goodwill impairment charge.
DaVita exited the fourth quarter with operating cash flow of $307 million and free cash flow of $112 million.
For 2019, DaVita expects operating income in the band of $1.54 billion to $1.64 billion.
Operating cash flow for the year is projected between $1.38 billion and 1.58 billion.
Effective income tax rate on income from continuing operations attributable to the company is projected between 28.5% and 29.5% for 2019.
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 -9.25% due to these changes.
At this time, DaVita HealthCare has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, DaVita HealthCare has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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