Why DaVita Stock Withered on Wednesday

Dialysis specialist DaVita (NYSE: DVA) had quite the Wednesday to forget, as investors sold out of its stock following the company's latest-earnings release. On the back of news that profitability was notably lower than expected, those folks left DaVita shares with a more-than 10% decline in value on the day. This was significantly worse than the 0.3% dip of the S&P 500 index that trading session.

Revenue rose while profitability slipped

For its third quarter, DaVita earned total revenue of $3.26 billion, which was an improvement over the $3.12 billion of the same period in 2023. On the other hand, the specialty healthcare company's non-GAAP (adjusted) net income slipped over that stretch of time, declining to $222 million ($2.59 per share) from the year-ago profit of $268 million.

While DaVita's top line exceeded (if barely) the average-analyst estimate of $3.25 billion, its adjusted profitability was well below the consensus of $2.72.

Management said the slight revenue gain "was primarily due to increases in average-reimbursement rates and other normal fluctuations." It added that the usual annual-rate increases, including from the federal Medicare program, also played a part, as did a rise in hospital inpatient dialysis treatments.

Better times ahead?

DaVita also proffered selected guidance for the entirety of 2024, stating that its adjusted, per-share earnings should come in at $9.25 to $10.05, while free cash flow (FCF) is forecast to range from $950 million to $1.2 billion. Those figures for full-year 2023 were $8.47 and nearly $1.24 billion, respectively. The company did not provide an estimate for revenue.

Investors don't like pronounced earnings misses, and they punished DaVita for this one. Market players might also believe that in an environment where the U.S. population is starting to skew older, a highly specialized healthcare company should be posting more encouraging growth in its top line too.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.