Can Revenue Cycle Operations Drive DVA Stock Before Q1 Earnings?

Core Viewpoint - DaVita Inc. is set to report its first-quarter 2025 results, with expectations of revenue growth driven by improved revenue cycle operations, despite challenges in patient admissions and treatment volume [1][2][4]. Financial Performance - In the last reported quarter, DaVita's EPS was $2.24, exceeding the Zacks Consensus Estimate by 1.4%, with an average earnings surprise of 5.4% over the trailing four quarters [1]. - For Q1 2025, the Zacks Consensus Estimate for revenues is $3.21 billion, reflecting a 4.6% increase from the prior year, while the EPS estimate is $1.75, indicating a 26.5% decline year-over-year [5]. Operational Factors - Management highlighted that innovation in revenue cycle operations has led to higher revenue per treatment, which has helped offset slower treatment volume recovery [2]. - DaVita has closed three of four acquisitions in Latin America, with the final acquisition in Brazil expected to close mid-2025, contributing to future growth [3][17]. Challenges - The company is facing elevated mortality and mistreatment rates, and new patient starts have been negatively impacted by supply constraints in peritoneal dialysis solutions [4]. - The temporary closure of Baxter's North Cove facility due to Hurricane Helene has further hindered new patient admissions, which is expected to affect volume growth in 2025 [4][19]. Market Performance - Over the past three months, DaVita's shares have declined by 17%, underperforming its sector and peers [8][10]. - The company's forward price-to-sales (P/S) ratio is 0.8X, significantly lower than the industry average of 2.8X, indicating a potential undervaluation relative to expected sales growth [11][12]. Long-Term Outlook - The transition of oral drugs to the dialysis benefit under Medicare is expected to expand patient access and drive long-term revenue growth [13][16]. - Proposed updates to the Medicare ESRD payment system could increase reimbursement rates by 2.1% in 2025, aiding in patient coverage expansion [18]. Investment Considerations - DaVita's strong core business and financial stability suggest potential for future gains, but the current valuation indicates it may be prudent to hold rather than add new positions [20][21].