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DaVita (DVA) Likely to Top Q1 Earnings: Stock to Gain?

We expect DaVita HealthCare Partners Inc. DVA to beat expectations when it reports first-quarter 2016 results on May 4, after the market closes.

Why a Likely Positive Surprise?

Our proven model shows that DaVita has the right combination of two key ingredients.
    
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +5.75%. This is because the Most Accurate estimate of 92 cents is pegged higher than the Zacks Consensus Estimate of 87 cents. This is a meaningful and leading indicator of a likely earnings beat.

Zacks Rank: DaVita carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating on earnings.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

Currently, the stock is trading at $73.90. We expect the release to lead to stock movement.

What is Driving the Better-than-Expected Earnings?

DaVita undertakes strategic acquisitions to expand its business. Growth initiatives like these have likely boosted the company’s top line as uncertainties related to the bundling rule and the capital markets have eased.

The company is anticipated to have witnessed better performance at Kidney Care in the to-be-reported quarter. Moreover, the company is expected to have pursued collaborations with local hospitals to improve patient care. Thus, the company is anticipated to benefit from such efforts as well as witness a boost in its competitive advantage and operating leverage.

DaVita has likely generated strong operating cash flow, which in turn, has enabled it to meet the its capital expenditure needs and spend on acquisitions. Share buybacks also boosted the bottom line during the quarter.

However, DaVita’s financial leverage is likely to have suffered owing to debt refinancing to keep leverage at high levels.

Moreover, in the first quarter, the company’s Dialysis business had one less operating day than the previous quarter. Hence, lower revenues and higher fixed costs for treatment are anticipated. Further, the company’s HealthCare Partners (HCP) unit is likely to post lower operating income as it is prone to be impacted by the seasonal needs of patients.

With respect to the surprise trend, the company delivered positive surprises in all of the last four quarters with an average beat of 2.64%.

Other Stocks to Consider

Here are three other stocks from the medical sector which you may want to consider as our model shows that even these have the right combination of elements to post an earnings beat this quarter:

Aceto Corp. ACET has an Earnings ESP of +5.26% and a Zacks Rank #3. The company is set to report first-quarter earnings on May 5.

Becton, Dickinson and Company BDX has an Earnings ESP of +1.99% and a Zacks Rank #2. The company is slated to report first-quarter earnings on May 5.

BIND Therapeutics, Inc. BIND has an Earnings ESP of +7.14% and a Zacks Rank #3. The company is expected to report first-quarter earnings on May 5.

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ACETO CORP (ACET): Free Stock Analysis Report
 
BIND THERAPEUTC (BIND): Free Stock Analysis Report
 
DAVITA HEALTHCR (DVA): Free Stock Analysis Report
 
BECTON DICKINSO (BDX): Free Stock Analysis Report
 
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