MrB Posted August 14, 2017 Share Posted August 14, 2017 @MrB With the uncertainty removed what is this thing worth? I looked a few times and I have no clue how to value this thing even without the uncertainty. GK kindly rephrase your question, so I can be sure I understand it correctly. Thanks for the reply. Simply put what is your price target and how can we get there? Are we looking at a double or a triple here? I looked it a few times looks like it is trading at 10 Free cash flow and growing at 6% with blow-up risk. Once the blow-up risk is removed will it go to 15 times or 25 times due to its oligopolistic characteristics and supply side tail wind. They need a lot of leverage to get their return on equity so the capital market has to stay in place. Also Is having free cash flow higher than earnings because they are under spending on CapEx or over depreciating? Broadly speaking your numbers look fair, but I also assume they allocate significant capital to buybacks (0.5 - 1Bn per annum) over the next 5 years, which should get you a double; triple is unlikely. I'm also assuming the risk of a blow-up is minimal, because the long term history and current structure of the industry makes the political trade off extremely unfavorable. The need is dire and increasing every year. Nobody is perfect, but the hard data tells me the industry (CMS, providers and commercial insurers) is doing a good job in a highly charged and politicized environment. Therefore, a structural change seems easier said than done. I don't like the leverage, but the recurring nature of the cash flows put it more in the bucket of a SIRI, DTV, etc Yes the capital markets/low interest rate environment has to stay in place. In our analysis the cash flow is not overstated due to the nature of the D&A, which is mostly as a result of inorganic growth; buying dialysis centers and DMG (HCP) in 2012 generates a lot of goodwill and the centers throw off immediate and substantial cash flow. The result is FCF running at 134% of NI over the last 10 years and 149% over the last 7 (probably mainly as a result of the goodwill generated by the botched purchase of HCP). Also the 5 star rating system looks thorough and independent; I think it is unlikely that DVA achieves high numbers and improve on those while under-investing in the business. Link to comment Share on other sites More sharing options...
Green King Posted August 15, 2017 Share Posted August 15, 2017 @MrB With the uncertainty removed what is this thing worth? I looked a few times and I have no clue how to value this thing even without the uncertainty. GK kindly rephrase your question, so I can be sure I understand it correctly. Thanks for the reply. Simply put what is your price target and how can we get there? Are we looking at a double or a triple here? I looked it a few times looks like it is trading at 10 Free cash flow and growing at 6% with blow-up risk. Once the blow-up risk is removed will it go to 15 times or 25 times due to its oligopolistic characteristics and supply side tail wind. They need a lot of leverage to get their return on equity so the capital market has to stay in place. Also Is having free cash flow higher than earnings because they are under spending on CapEx or over depreciating? Broadly speaking your numbers look fair, but I also assume they allocate significant capital to buybacks (0.5 - 1Bn per annum) over the next 5 years, which should get you a double; triple is unlikely. I'm also assuming the risk of a blow-up is minimal, because the long term history and current structure of the industry makes the political trade off extremely unfavorable. The need is dire and increasing every year. Nobody is perfect, but the hard data tells me the industry (CMS, providers and commercial insurers) is doing a good job in a highly charged and politicized environment. Therefore, a structural change seems easier said than done. I don't like the leverage, but the recurring nature of the cash flows put it more in the bucket of a SIRI, DTV, etc Yes the capital markets/low interest rate environment has to stay in place. In our analysis the cash flow is not overstated due to the nature of the D&A, which is mostly as a result of inorganic growth; buying dialysis centers and DMG (HCP) in 2012 generates a lot of goodwill and the centers throw off immediate and substantial cash flow. The result is FCF running at 134% of NI over the last 10 years and 149% over the last 7 (probably mainly as a result of the goodwill generated by the botched purchase of HCP). Also the 5 star rating system looks thorough and independent; I think it is unlikely that DVA achieves high numbers and improve on those while under-investing in the business. Thanks for your thoughts. Seems fair. I think the incremental CapEx requirement for $DVA is different from DTV and SIRI but I think the need for their service is much stronger. So it might balance out once the uncertainty is removed. Cheers Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted August 16, 2017 Share Posted August 16, 2017 Thanks for your thoughts. Seems fair. I think the incremental CapEx requirement for $DVA is different from DTV and SIRI but I think the need for their service is much stronger. So it might balance out once the uncertainty is removed. Cheers I think the part of the equation you are missing is pricing power. DVA has little to no pricing power on the government payer side of their business, but has enjoyed strong pricing power on the private payer side. The fear that the latter is deteriorating is probably the main reason the stock has performed poorly in the recent past. Link to comment Share on other sites More sharing options...
MrB Posted August 16, 2017 Share Posted August 16, 2017 Thanks for your thoughts. Seems fair. I think the incremental CapEx requirement for $DVA is different from DTV and SIRI but I think the need for their service is much stronger. So it might balance out once the uncertainty is removed. Cheers I think the part of the equation you are missing is pricing power. DVA has little to no pricing power on the government payer side of their business, but has enjoyed strong pricing power on the private payer side. The fear that the latter is deteriorating is probably the main reason the stock has performed poorly in the recent past. I don't think I will go as far to say I disagree, but neither do I think it is as plain vanilla; maybe DVA has more pricing power than they are prepared to use, Valeant being a case in point. Then again not having pricing power and having it, but not using it has the same financial result. Another thought; maybe they have too little power with government and too much with pvt? Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted August 16, 2017 Share Posted August 16, 2017 Thanks for your thoughts. Seems fair. I think the incremental CapEx requirement for $DVA is different from DTV and SIRI but I think the need for their service is much stronger. So it might balance out once the uncertainty is removed. Cheers I think the part of the equation you are missing is pricing power. DVA has little to no pricing power on the government payer side of their business, but has enjoyed strong pricing power on the private payer side. The fear that the latter is deteriorating is probably the main reason the stock has performed poorly in the recent past. I don't think I will go as far to say I disagree, but neither do I think it is as plain vanilla; maybe DVA has more pricing power than they are prepared to use, Valeant being a case in point. Then again not having pricing power and having it, but not using it has the same financial result. Another thought; maybe they have too little power with government and too much with pvt? I think if you read between the line the real battle is between the government and the private payers over who will pay for the treatment of nearly 500,000 dialysis patients. The dialysis providers are trapped in the middle, forced to resort to odd workarounds like AKF donation schemes to juice what would otherwise be a fairly pedestrian business (albeit one with secular growth tailwinds). DVA and the rest of the industry aren't as unethical as they at first appear to be, but the terrible optics of the situation have given the private payers the upper hand. Link to comment Share on other sites More sharing options...
Green King Posted August 16, 2017 Share Posted August 16, 2017 Thanks for your thoughts. Seems fair. I think the incremental CapEx requirement for $DVA is different from DTV and SIRI but I think the need for their service is much stronger. So it might balance out once the uncertainty is removed. Cheers I think the part of the equation you are missing is pricing power. DVA has little to no pricing power on the government payer side of their business, but has enjoyed strong pricing power on the private payer side. The fear that the latter is deteriorating is probably the main reason the stock has performed poorly in the recent past. I don't think I will go as far to say I disagree, but neither do I think it is as plain vanilla; maybe DVA has more pricing power than they are prepared to use, Valeant being a case in point. Then again not having pricing power and having it, but not using it has the same financial result. Another thought; maybe they have too little power with government and too much with pvt? I think if you read between the line the real battle is between the government and the private payers over who will pay for the treatment of nearly 500,000 dialysis patients. The dialysis providers are trapped in the middle, forced to resort to odd workarounds like AKF donation schemes to juice what would otherwise be a fairly pedestrian business (albeit one with secular growth tailwinds). DVA and the rest of the industry aren't as unethical as they at first appear to be, but the terrible optics of the situation have given the private payers the upper hand. This uncertainty creates the price and the market. The alternative is a cut in price than care than the decrease in availability and explosion related private insurance claim due to lack service. More people would have to leave the work force (premature death) because of the lack of treatment. Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted August 16, 2017 Share Posted August 16, 2017 Thanks for your thoughts. Seems fair. I think the incremental CapEx requirement for $DVA is different from DTV and SIRI but I think the need for their service is much stronger. So it might balance out once the uncertainty is removed. Cheers I think the part of the equation you are missing is pricing power. DVA has little to no pricing power on the government payer side of their business, but has enjoyed strong pricing power on the private payer side. The fear that the latter is deteriorating is probably the main reason the stock has performed poorly in the recent past. I don't think I will go as far to say I disagree, but neither do I think it is as plain vanilla; maybe DVA has more pricing power than they are prepared to use, Valeant being a case in point. Then again not having pricing power and having it, but not using it has the same financial result. Another thought; maybe they have too little power with government and too much with pvt? I think if you read between the line the real battle is between the government and the private payers over who will pay for the treatment of nearly 500,000 dialysis patients. The dialysis providers are trapped in the middle, forced to resort to odd workarounds like AKF donation schemes to juice what would otherwise be a fairly pedestrian business (albeit one with secular growth tailwinds). DVA and the rest of the industry aren't as unethical as they at first appear to be, but the terrible optics of the situation have given the private payers the upper hand. This uncertainty creates the price and the market. The alternative is a cut in price than care than the decrease in availability and explosion related private insurance claim due to lack service. More people would have to leave the work force (premature death) because of the lack of treatment. How much pain can/will the dialysis providers take before they stop opening new clinics? One reason to invest in DVA is that it appears to be the low cost provider, and thus would be the least hurt if the industry gets squeezed. However, DVA being the least hurt in a scenario where the dialysis industry's economic returns decline probably wouldn't be a great result for DVA investors. I think the calculus of what the socially optimal payment level for dialysis services is very complex. Complex enough that's it difficult to make even a directional (higher? lower?) judgment. Link to comment Share on other sites More sharing options...
LC Posted August 31, 2017 Share Posted August 31, 2017 John Oliver bit on Davita. Take with a grain of salt of course Link to comment Share on other sites More sharing options...
frankhkii Posted August 31, 2017 Share Posted August 31, 2017 John Oliver bit on Davita. Take with a grain of salt of course For what it's worth, apparently, John Oliver has a writer/journalist who is close with Chanos... Link to comment Share on other sites More sharing options...
sleepydragon Posted August 31, 2017 Share Posted August 31, 2017 This remind me in 2008/2009 when David Enhorn was pitching his MCO short, and even WEB sold some of his MCO. I bought MCO and sold it. What a regret. Enhorn is still shorting MCO. Link to comment Share on other sites More sharing options...
rb Posted August 31, 2017 Share Posted August 31, 2017 John Oliver bit on Davita. Take with a grain of salt of course For what it's worth, apparently, John Oliver has a writer/journalist who is close with Chanos... Maybe, but still DVA is nobody's idea of a model corporate citizen. Link to comment Share on other sites More sharing options...
Jurgis Posted August 31, 2017 Share Posted August 31, 2017 Maybe, but still DVA is nobody's idea of a model corporate citizen. Come on. CEO who dresses like a Musketeer, carries a sabre, rides in on a horse and yells "All for one and one for all!". Serious hotness and man crush right there! :-* Can I get his phone number? ::) Link to comment Share on other sites More sharing options...
sleepydragon Posted August 31, 2017 Share Posted August 31, 2017 http://www.npr.org/sections/health-shots/2017/08/30/547004371/this-is-surreal-houston-dialysis-center-struggles-to-treat-patients "Scott waited almost four hours to start dialysis after arriving on Tuesday. Part of the reason is because the DaVita center is open to all dialysis patients this week, not just regulars such as Scott." Link to comment Share on other sites More sharing options...
sleepydragon Posted August 31, 2017 Share Posted August 31, 2017 http://www.npr.org/sections/health-shots/2017/08/30/547004371/this-is-surreal-houston-dialysis-center-struggles-to-treat-patients "Scott waited almost four hours to start dialysis after arriving on Tuesday. Part of the reason is because the DaVita center is open to all dialysis patients this week, not just regulars such as Scott." Yesuf Said, a nurse who's worked at this center for four years, says it's been difficult dealing with so many patients at once and so many who are new to this center. "We have to do it, because nobody can do it," he says. "It's life and death for patients." Link to comment Share on other sites More sharing options...
sleepydragon Posted August 31, 2017 Share Posted August 31, 2017 http://denver.cbslocal.com/2017/08/31/davita-dialysis-clinics-harvey/ Last week, DaVita began setting up a command center in Houston so it could properly address any issues as they arose. DaVita has 7,500 patients at 150 facilities in the path of the storm. “Out of those clinics, only about one-third were able to operate yesterday (Tuesday), and we worked day and night and we were able to open about half of those centers today,” Rodriguez said. DaVita has been using boats and anything else officials can in order to get patients the care they need. Dialysis patients, on average, get treatment every three days. Missing two sessions can become life threatening for patients. But it’s not only patients who have been effected by the rain and flooding, employees are impacted as well but still showing up to work. “We know about 121 of our teammates homes are flooded and of course many more are evacuated,” Rodriguez said about DaVita teammates. “Remember, these caregivers, these professionals, their homes are flooded too, their families have been displaced too, and they have to go out and take care of our patients because that’s what in their heart. I’m at a loss of words when I hear stories of how amazing they are.” Link to comment Share on other sites More sharing options...
sleepydragon Posted August 31, 2017 Share Posted August 31, 2017 http://www.pbs.org/newshour/bb/houston-dialysis-patients-getting-treatment-disaster-means-life-death/ "There were a lot of people waiting for this lifesaving treatment. And just the distance people had to come to get there, it's really — it's really, really tough to kind of witness that. But the patients I was able to speak with were really optimistic and really grateful to have a clinic that was actually open when their local clinic had been closed due to all of the flooding and just difficulty with traveling. I talked to a patient while she was receiving treatment. Her name was Debrah Payne, and she was just really happy to still be alive. DEBRAH PAYNE, Dialysis Patient: I was afraid. I just — I didn't know what I was going to do. And I'm sure all the other people who couldn't make it who know that they have to do this to survive were concerned about whether they were going to make it here or not. " Link to comment Share on other sites More sharing options...
MrB Posted September 1, 2017 Share Posted September 1, 2017 It is also not only in times of crisis that DVA is prepared to service the industry despite no or little financial gain. In the Q2 2013 call the mentioned that they run about 150-200 clinics (about 10% of the total) at a loss, mainly in inner city and rural locations where there are not sufficient private patients to cross subsidize the Medicare shortfall. Link to comment Share on other sites More sharing options...
sleepydragon Posted September 6, 2017 Share Posted September 6, 2017 A different perspective related to the kidney charity fund. Link to comment Share on other sites More sharing options...
flesh Posted September 6, 2017 Share Posted September 6, 2017 A different perspective related to the kidney charity fund. This is a repost, if anyone hasn't read it yet it would likely change your perspective... http://www.kidneyfund.org/assets/pdf/advocacy/akf-comment-letter-to-cms.pdf Link to comment Share on other sites More sharing options...
MrB Posted September 13, 2017 Share Posted September 13, 2017 Cost, Quality, and Value: The Changing Political Economy of Dialysis Care http://jasn.asnjournals.org/content/18/7/2021.full.pdf+html Old but interesting read in general and Figure 1 Chart C is particularly interesting, showing Medicare allowed charges per treatment dropped from $140 to $45 from 1973 to 2006 when adjusted for inflation. Link to comment Share on other sites More sharing options...
sleepydragon Posted September 15, 2017 Share Posted September 15, 2017 Interesting discussion about U.K. Health system: Bennie Sander is calling for single payer insurance system. If that get done I think it shall be very good for Davitas ( FMS is trading at a premium PE compared to DVA) Link to comment Share on other sites More sharing options...
Liberty Posted September 22, 2017 Share Posted September 22, 2017 If you're wondering why the stock is volatile today: http://sirf-online.org/2017/09/22/davita-inc-warren-and-charlies-excellent-insurance-gambit/ (haven't read it yet, so can't comment) Link to comment Share on other sites More sharing options...
MrB Posted September 22, 2017 Share Posted September 22, 2017 If you're wondering why the stock is volatile today: http://sirf-online.org/2017/09/22/davita-inc-warren-and-charlies-excellent-insurance-gambit/ (haven't read it yet, so can't comment) Sniff, sniff - smells like Jim... Link to comment Share on other sites More sharing options...
cubsfan Posted September 22, 2017 Share Posted September 22, 2017 If you're wondering why the stock is volatile today: http://sirf-online.org/2017/09/22/davita-inc-warren-and-charlies-excellent-insurance-gambit/ (haven't read it yet, so can't comment) Sniff, sniff - smells like Jim... Interesting. First Chanos, now Roddy Boyd - only 5% of float short, now every hedge fund in the world will hit it. Link to comment Share on other sites More sharing options...
rb Posted September 22, 2017 Share Posted September 22, 2017 If you're wondering why the stock is volatile today: http://sirf-online.org/2017/09/22/davita-inc-warren-and-charlies-excellent-insurance-gambit/ (haven't read it yet, so can't comment) Sniff, sniff - smells like Jim... It may be.... but is the report wrong? Basically it alleges that the AKF is effectively a front for dialysis providers, mainly Davita and Fresenius since they provide the bulk of AKF funding. In turn AKF pays insurance premiums for people that otherwise wouldn't be able to continue paying their premiums. Because of this people are able to keep their private insurance plans and Davita and Fresenius are charging their insurance companies like crazy. If AKF wouldn't be there those people would stop having private insurance and would go on Medicare which would be a very bad outcome for Davita. Also the insurance companies are understandably really pissed off by this. I think that's about the gist of it. Link to comment Share on other sites More sharing options...
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