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

Denver, CO-based DaVita HealthCare Partners Inc. DVA, a leading provider of dialysis services to patients suffering from chronic kidney failure, is expected to report second-quarter fiscal 2017 results on Aug 1, after market close.

Last quarter, the company delivered earnings of 79 cents per share, which missed the Zacks Consensus Estimate of 82 cents. Over the last four quarters, the company witnessed an average earnings beat of 2.04%.

Let’s see how things are shaping up prior to this quarter.

Factors at Play

Davita’s Kidney Care business is expected to perform well in the quarter under review due to its continuous investments in capital-efficient technologies. Steady overseas expansion through strategic alliances and acquisition of dialysis centers has played a key role in boosting DaVita’s growth. We believe that DaVita’s constant efforts to upgrade its quality of services, global expansion and active acquisitions are key positives.

Operating cash flow is expected to remain strong in the quarter due to improved performance of the Kidney Care business and the capitated care business. Overall management projected DaVita’s operating income for fiscal 2017 in the range of $1.6–$1.8 billion. Of this, the company expects operating income of $1.5–$1.6 billion for Kidney Care business. Operating cash flow projection for fiscal 2017 is expected at $1.8–$2.0 billion.

On the flipside, escalating expenses are a concern. Management expects significant decrease in operational income, especially in the pharmacy business, for fiscal 2017. DaVita expects a hike in its dialysis and related lab services in the quarter, indicating probabilities of an increase in its general and administrative expenses. The company’s plans to improve its information technology infrastructure and support certain regulatory compliance and legal matters are likely to drive expenses in the quarter.

Furthermore, uncertainties associated with the possibilities of a repeal of the Affordable Care Act under President Trump add to the company’s concerns.

Coming to estimate revisions, the Zacks Consensus Estimate for current quarter earnings has been stable at 90 cents per share over the last two months.

Earnings Whispers

Despite solid prospects, our quantitative model doesn’t conclusively point to an earnings beat this quarter for the stock.

That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for DaVita is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 90 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Stocks to Consider

Here are three companies you may want to consider, as our proven model shows that they have the right combination of elements to post an earnings beat this quarter.  

Thermo Fisher Scientific Inc. TMO has an Earnings ESP of +0.44% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dextera Surgical Inc. DXTR has an Earnings ESP of +9.09% and a Zacks Rank #2.

Telefex Inc. TFX has an Earnings ESP of +1.06% and a Zacks Rank #2.

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