Yahoo Finance Strength in Kidney Care Likely to Aid DaVita's (DVA) Q1 Earnings
DaVita Inc. DVA is scheduled to release first-quarter 2024 results on May 2, after the closing bell.
In the last reported quarter, the company’s earnings per share (EPS) of $1.87 surpassed the Zacks Consensus Estimate by 22.2%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on all occasions, delivering an earnings surprise of 35.6%, on average.
Let’s see how things have shaped up prior to this announcement.
Factors at Play
On fourth-quarter 2023 earnings call in February, DaVita’s management confirmed that its Integrated kidney care (IKC) business saw some improvements throughout 2023. The total medical expense of patients in its IKC programs reflected approximately 30% growth year over year, representing care for 58,000 patients as of year-end (38% increase from 2022). Per management, DaVita’s model of care has proven effective in helping its patients lead healthier lives and reduce medical costs, reflecting a net savings rate that is slightly ahead of the company’s expectations.
Management also stated that it expects its traditional value-based care programs to continue to be disciplined, prioritizing profitable growth. For 2024, DaVita expects growth exceeding 25% for total medical expenses and covered lives. Additionally, its per member per month cost continues to trend down as a result of the program growth and improved fixed cost leverage. In 2023, its per member per month cost declined 7%. Management expects per member per month cost to further decline by approximately 15% in 2024.
DaVita Inc. Price and EPS Surprise
DaVita Inc. price-eps-surprise | DaVita Inc. Quote
Per management, after years of investment and consistent year-over-year improvements in cost savings, DaVita’s Medicare Advantage contracts and Special Need Plans have now reached profitability. These developments significantly raise our optimism about the stock, as we expect this momentum to have continued in the first quarter of 2024 and driven up its overall revenues.
On the earnings call, DaVita’s management confirmed that its savings to offset any increase in adjusted patient care cost per treatment include leverage of fixed costs as treatment volume grows and annualization of cost savings initiatives in 2023, including its conversion to MIRCERA for anemia management and its center consolidation efforts. These initiatives are likely to have continued in the to-be-reported quarter, thereby benefiting the company.
On the same earnings call, management also confirmed that revenue per treatment was strong in the fourth quarter. This was driven by continued improvements in DaVita’s revenue cycle performance. We expect this trend to have continued in the first quarter, thus driving up the revenues.
On the same call, DaVita’s management shared some details about the FLOW study, which is on the near-term horizon of the company.
Management expects the study to demonstrate efficacy on multiple endpoints, including slowing the progression of chronic kidney disease. This looks promising for the stock.
On the call, management stated that its labor performance in 2023 was better than 2022. The company cut its reliance on contract labor more quickly than expected and improved staffing in its centers. Although the company has been reducing its reliance on contract labor, it is still likely to have weighed on DaVita’s performance in the to-be-reported quarter. Management continues to expect wages to increase at rates above pre-COVID levels. This also raises our apprehension.
The Estimate Picture
For first-quarter 2024, the Zacks Consensus Estimate of $3.01 billion for total revenues calls for an uptick of 4.8% from the prior-year reported figure.
The consensus estimate for EPS is pegged at $1.96, indicating an improvement of 24.1% from the prior-year reported number.
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.
Stocks Worth a Look
Here are a few medical stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.
Gritstone bio, Inc. GRTS has an Earnings ESP of +6.67% and a Zacks Rank of 2. GRTS has an estimated growth rate of 20.8% for 2024. You can see the complete list of today’s Zacks #1 Rank stocks here.
Gritstone’s earnings surpassed estimates in all the trailing four quarters, with the average surprise being 12.1%.
Erasca, Inc. ERAS has an Earnings ESP of +12.20% and a Zacks Rank of 2. ERAS has an estimated long-term growth rate of 37.5%.
Erasca’s earnings surpassed estimates in all the trailing four quarters, with the average surprise being 17.6%.
Blueprint Medicines Corporation BPMC has an Earnings ESP of +16.92% and a Zacks Rank of 2. BPMC has an estimated long-term growth rate of 34%.
Blueprint Medicines’ earnings surpassed estimates in all the trailing four quarters, with the average surprise being 13.3%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
DaVita Inc. (DVA) : Free Stock Analysis Report
Blueprint Medicines Corporation (BPMC) : Free Stock Analysis Report
Gritstone bio Inc. (GRTS) : Free Stock Analysis Report
Erasca, Inc. (ERAS) : Free Stock Analysis Report
