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DaVita HealthCare (DVA) Down 1.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for DaVita HealthCare (DVA). Shares have lost about 1.4% 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 catalysts.

DaVita Q1 Earnings Top Estimates, Ups FY23 Earnings Per Share View

DaVita delivered adjusted earnings per share of $1.58 in the first quarter of 2023, which declined 4.2% year over year. The figure topped the Zacks Consensus Estimate by 46.3%.

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Our projection of adjusted earnings per share was $1.02.

GAAP earnings per share for the quarter was $1.25, reflecting a plunge of 22.4% year over year.

Revenues in Detail

Revenues of $2.87 billion in the first quarter were up by 1.9% year over year. The figure surpassed the Zacks Consensus Estimate by 1.6%.

The first-quarter revenue compares to our estimate of $2.83 billion.

The top line was driven by solid performances by DaVita’s dialysis patient service revenues and Other revenues.

Segment Details

The company’s dialysis patient service revenues were $2.76 billion, up by 1.6% year over year. This figure compares to our dialysis patient service revenues’ first-quarter projection of $2.72 billion.

Other revenues were $112.7 million, up 11.2% from the year-ago quarter’s figure. This figure compares to our first-quarter projection of $105.5 million.

Per management, the total U.S. dialysis treatments for the first quarter were 7,117,427 or 92,434 per day, on average. This represents a per-day increase of 0.9% on a sequential basis.

As of Mar 31, 2023, DaVita provided dialysis services to around 246,000 patients at 3,058 outpatient dialysis centers, of which 2,707 were U.S. centers while 351 were located across 11 other countries.

During the first quarter of 2023, the company opened a total of three new dialysis centers and closed 20 dialysis centers in the United States. It also opened three dialysis centers and closed two dialysis centers outside the United States in the same period.

Margin Details

In the quarter under review, DaVita’s gross profit rose 1.9% to $814.5 million. However, the gross margin contracted 1 basis point (bps) to 28.4%.

We had projected 25.6% of gross margin for the first quarter.

General & administrative expenses climbed 12.5% to $331.6 million.

Adjusted operating profit totaled $482.9 million, reflecting a 4.2% plunge from the prior-year quarter’s level. Adjusted operating margin in the first quarter contracted 109 bps to 16.8%.

Financial Position

DaVita exited first-quarter 2023 with cash and cash equivalents, and short-term investments of $367.1 million compared with $321.8 million at 2022-end. Total debt (including the current portion) at the end of first-quarter 2023 was $8.66 billion compared with $8.92 billion at the end of 2022.

Net cash flow from operating activities at the end of first-quarter 2023 was $462.6 million compared with $322.2 million a year ago.

2023 Guidance

DaVita has raised its adjusted earnings per share outlook for 2023.

Adjusted earnings per share from continuing operations for the full year is now projected to be in the range of $6.20-$7.30, up from the prior outlook of $5.45-$6.95. The Zacks Consensus Estimate for the same currently stands at $5.93.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 15.94% due to these changes.

VGM Scores

At this time, DaVita HealthCare has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, DaVita HealthCare has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

DaVita HealthCare belongs to the Zacks Medical - Outpatient and Home Healthcare industry. Another stock from the same industry, Encompass Health (EHC), has gained 2.6% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Encompass Health reported revenues of $1.16 billion in the last reported quarter, representing a year-over-year change of -13%. EPS of $0.88 for the same period compares with $0.97 a year ago.

For the current quarter, Encompass Health is expected to post earnings of $0.74 per share, indicating a change of -16.9% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.2% over the last 30 days.

Encompass Health has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.

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