DaVita (DVA) Beats on Q3 Earnings, Narrows 2021 EPS View

Davita Inc. DVA delivered adjusted earnings per share (“EPS”) of $2.36 in the third quarter of 2021, up 31.1% year over year. The figure surpassed the Zacks Consensus Estimate by 6.8%.

GAAP EPS for the quarter was $2.36, reflecting an 84.4% surge from the year-earlier figure.

Revenues in Detail

Revenues of $2.94 billion in the third quarter were up 0.5% year over year. The figure marginally missed the Zacks Consensus Estimate by 0.04%.

Management noted that despite the current surge in COVID-19 cases driven by the Delta variant across the broad U.S. population, the new case count’s peak was approximately one-third of the winter peak, and mortality rates were relatively lower among DaVita's dialysis patient population. This is likely on the back of the vaccination rates among the patients.

Segment Details

The company’s dialysis patient service revenues were $2.84 billion, up 2% year over year. Other revenues were $100.4 million, down 29.5% from the year-ago quarter’s figure.

Per management, total U.S. dialysis treatments for the third quarter were 7,466,197 or 94,509 treatments per day, on average. This represents a per-day decrease of 2.5% on a year-over-year basis.

As of Sep 30, 2021, DaVita provided dialysis services to around 241,600 patients at 3,155 outpatient dialysis centers, of which 2,822 were U.S. centers while 333 were located across 10 other countries.

During the third quarter of 2021, the company acquired one dialysis center, opened a total of nine dialysis centers and closed 15 in the United States. It also acquired three dialysis centers, opened one and closed two dialysis centers outside the United States in the same period.

DaVita Inc. Price, Consensus and EPS Surprise

DaVita Inc. Price, Consensus and EPS Surprise

DaVita Inc. price-consensus-eps-surprise-chart | DaVita Inc. Quote

Margin Details

In the quarter under review, DaVita’s gross profit declined 2.4% to $929.7 million. Gross margin contracted 93 basis points (bps) to 31.6%.

General & administrative expenses fell 19.3% to $293.1 million.

Adjusted operating profit totaled $636.6 million, reflecting an 8.1% uptick from the prior-year quarter’s level. Adjusted operating margin in the third quarter expanded 152 bps to 21.7%.

Financial Position

DaVita exited the second quarter of 2021 with cash and cash equivalents, and short-term investments of $1.07 billion compared with $3.58 billion at the end of the second quarter. Total debt (including current portion) at the end of the third quarter of 2021 was $8.94 billion compared with $8.97 billion at the end of second quarter.

Cumulative net cash flow from operating activities at the end of the third quarter was $1.40 billion compared with $1.49 billion a year ago.

DaVita repurchased 2.731 million shares of its common stock for $336 million during the reported quarter. Management also informed that from Sep 30 to Oct 27, the company repurchased 1.229 million shares of its common stock for $140 million.

2021 Guidance

DaVita has narrowed its financial outlook for the full year.

Adjusted EPS is projected within $8.80-$9.15, where the upper end of the guidance has been reduced from the previous outlook of $8.80-$9.40. The Zacks Consensus Estimate for the same currently stands at $9.19.

Our Take

DaVita ended the third quarter with better-than-expected earnings. The company registered strong dialysis patient service revenues during the period, which is impressive. The acquisition of several dialysis centers, both within the United States and overseas, is encouraging as well. The expansion of adjusted operating margin also bodes well for the stock.

However, lower-than-expected revenues, along with a fall in the company’s Other revenues during the third quarter, are concerning. Per-day decrease in total U.S. dialysis treatments is also discouraging. Contraction of gross margin also does not augur well for the stock. Foreign exchange headwinds and stiff competition continue to weigh on the company.

Zacks Rank and Stocks to Consider

DaVita currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader medical space that have announced quarterly results are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and AngioDynamics, Inc. ANGO.

West Pharmaceutical, carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted EPS of $2.06, which beat the Zacks Consensus Estimate by 13.2%. Third-quarter revenues of $706.5 million outpaced the consensus mark by 3.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher reported third-quarter 2021 adjusted EPS of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Third-quarter revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%. It currently carries a Zacks Rank #2.

AngioDynamics reported first-quarter fiscal 2022 adjusted loss per share of 2 cents, narrower than the Zacks Consensus Estimate of a loss of 5 cents. Revenues of $76.9 million surpassed the Zacks Consensus Estimate by 8.4%. It currently sports a Zacks Rank #1.

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