DaVita Raises Optimism for 2H11 - Analyst Blog
October 19 2011 - 1:36PM
Zacks
Yesterday, DaVita Inc. (DVA) announced the
estimates for its third-quarter earnings and raised the operating
income guidance for 2011.
The company expects its third-quarter operating income to be in
the range of $314–322 million and earnings per share from
continuing operations to be between $1.43 and $1.48, based on
substantial volume growth and reduced operating costs. The
estimates exclude special
items.
Improved
clinical practices and physicians’ reaction to the new FDA label
for Epogen, a drug for increasing red blood cells in kidney
patients, led to reduced utilization of physician-prescribed
pharmaceuticals, thereby bringing down DaVita’s operating
costs.
Additionally, management
expects a 4.6% growth in normalized non-acquired treatment.
However, the mix of treatments reimbursed by non-government payors,
as a percentage of total treatments is expected to deteriorate
again in the third quarter, after showing a slight improvement in
the second quarter of 2011.
DaVita also
revealed that the operating results of DSI Renal Inc. will be
consolidated with the company’s earnings from September 1, 2011
onwards. The merger deal of approximately $690 million was
announced on February 4, 2011and was completed on September 6,
2011.
The third
quarter earnings estimates coupled with increased general and
administrative expense forecast for the fourth quarter and an
expected decline in rates from Veterans Administration, prompted
DaVita to raise its full year earnings guidance.
For 2011,
management increased its operating income guidance range to
$1.125–1.155 billion from the previously announced estimate of
$1.08–1.12 billion. The guidance excludes an after-tax non-cash
goodwill impairment charge of $14.4 million or 14 cents per
share recorded in the second quarter of 2011.
Moreover, DaVita affirmed its 2012 operating income guidance of
$1.2–1.3 billion. The guidance is based on the expected changes in
commercial and government rates and commercial mix, as well as the
expected increase in investments, particularly for international
expansion, and the uncertainty about physician-prescribed
pharmaceutical expenses.
Further, the company announced the receipt of a subpoena for
documents related to an investigation being carried out regarding
inappropriate alliances with pharmaceutical companies and
physicians.
The company will report its third-quarter earnings after the
market closes on November 3, 2011.The Zacks Consensus Estimate for
DaVita’s third-quarter earnings is currently at $1.29 per share, up
about 12% year-over-year. Of the 14 firms covering the stock, 2
firms revised their estimates downward, while no upward revisions
were witnessed in the last 30 days.
For 2011, DaVita’s earnings are expected to be about $4.81 per
share, climbing about 10% year-over-year. The company’s rival
HealthSouth Corporation (HLS) is expected to
announce its third quarter earnings after the market closes on
October 27, 2011.
Currently, DaVita caries a Zacks #2 Rank, implying a short term
Buy rating.
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