DaVita Inc. DVA is scheduled to report third-quarter 2024 results on Oct. 29, after the closing bell.
In the last reported quarter, the company’s earnings per share (EPS) of $2.59 surpassed the Zacks Consensus Estimate by 4.9%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on all occasions, delivering an earnings surprise of 24.2%, on average.
For third-quarter 2024, the Zacks Consensus Estimate for revenues is pegged at $3.22 billion, implying an improvement of 3.2% from the prior-year quarter’s reported figure. The consensus estimate for EPS is pegged at $2.76, indicating a decline of 3.2% from the prior-year period’s reported number.
Estimate Movement
Earnings estimates for DaVita’s 2024 earnings have remained flat at $9.99 in the past 60 days.
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Let’s check out the factors that have shaped DVA’s performance prior to this announcement.
Factors to Note
On second-quarter 2024earnings callin August, DaVita’s management confirmed that continued strength in revenue per treatment (RPT) has been a key contributor to the company’s performance. Per management, strength in RPT also supports the increase in the company’s 2024 guidance.
Per management, the primary driver of RPT was continuous improvement in DaVita’s collection capabilities. The complexity of revenue operations has increased over the last few years. To counter this challenge, the company has made a series of targeted investments in technology and teammates to modernize and retain top-in-class capabilities. Management believes that this has improved DVA’s overall collection rate and enabled it to collect on claims more quickly, reducing days of sales outstanding.
Another important driver for the continued strength in RPT was DaVita’s health plan negotiations, which have resulted in modestly higher rate increases due to a higher inflationary environment over the past few years. These trends are likely to have continued in the third quarter, thereby aiding DVA’s quarterly revenues.
With respect to DaVita’s Integrated Kidney Care business, management expects results in the second half of the year to be significantly stronger than the first half as a result of the timing of revenue recognition. This raises our optimism about the stock’s third-quarter performance.
In March, DaVita announced that it had agreed to terms on expanding its international operations in Brazil and Colombia, and its entry into Chile and Ecuador. On the second-quarterearnings call management stated that the acquisitions in Ecuador and Chile had already closed. This is likely to have generated additional revenues for the company during the third quarter.
What Our Model Suggests
Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), along with a positive Earnings ESP, has higher chances of beating estimates. This is not the case here, as you can see below.
Earnings ESP: DaVita has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares Outperform Industry, Underperforms Sector and S&P
Year to date, shares of DaVita have gained 52.2%. The stock has outperformed the Medical - Outpatient and Home Healthcare’s 16.8% rise. DVA’s shares also outperformed the Zacks Medical sector’s increase of 4.6% and the S&P 500’s rise of 21.9%.
YTD Price Comparison
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Key Valuation Metric
From a valuation standpoint, DaVita’s forward 12-month price-to-earnings (P/E) is 14.5X, a discount to the industry's average of 21.2X. The company is also trading at a significant discount to other industry players like Amedisys, Inc. AMED, with its current P/E being 19.6X, Quest Diagnostics Incorporated DGX, whose current P/E is 16.6X, and Encompass Health Corporation EHC, whose current P/E is 20.8X. This suggests that investors may be paying a lower price relative to the company's expected sales growth.
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Long-Term Investment Visibility
DaVita is likely to continue its strong performance in 2024 on the back of a series of targeted investments in technology and teammates to modernize and retain top-in-class capabilities. Per management, these investments focus on greater automation of routine tasks, increasing rate of electronic claims submission and more frequent benefit insurance verification, among other enhancements. On the second-quarterearnings call management was optimistic about its experience with these capabilities over the past year and expects these improvements to be sustainable and to continue into 2025 and beyond.
Management is also optimistic about its track record of innovation and discipline within its cost structure to bridge the gap between health plan rates and inflation. Per DVA, the combination of these two factors, along with continued improvement in payer mix, increases its expectations for RPT growth for the year.
DaVita also expects to close its acquisitions in Colombia and Brazil in the third quarter of 2024 and by year-end, respectively. These, along with the acquired businesses in Ecuador and Chile, are likely to boost its revenues in the long term.
Our Final Take
There is no denying that DaVita sits favorably in terms of core business strength, earnings prowess, robust financial footing and global opportunities. The stock’s strong core growth prospects are a good reason for existing investors to retain shares for potential future gains.
For those exploring to make new additions to their portfolios, the valuation indicates expectations of superior performance compared with its industry and sector peers. However, as it is still valued lower than the broader market, it suggests potential room for growth if it can align more closely with overall market performance. As the chances of beating estimates is unlikely, it would be unwise to add the stock to one’s portfolio. However, if investors are already holding the stock, it would be prudent to hold on to it at present.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
