rolling Posted April 19, 2018 Share Posted April 19, 2018 First bought davita yesterday at 64... It is the first buyback window after the announcement of the sale of HCP and it has pulled back a lot. Low earnings multiple, lower tax rate, low net debt after the deal, cannibal, a big runaway for expansion (international), a growing client base and expectations of profit after achieving scale in international markets. It seems to me that the pricing headwinds might not be enought to counter all these pluses. Link to comment Share on other sites More sharing options...
cubsfan Posted April 19, 2018 Share Posted April 19, 2018 All DVA needs to do is keep reloading on the stock buybacks with funds from UHC deal. We should do just fine. Link to comment Share on other sites More sharing options...
MrB Posted April 19, 2018 Share Posted April 19, 2018 First bought davita yesterday at 64... It is the first buyback window after the announcement of the sale of HCP and it has pulled back a lot. Low earnings multiple, lower tax rate, low net debt after the deal, cannibal, a big runaway for expansion (international), a growing client base and expectations of profit after achieving scale in international markets. It seems to me that the pricing headwinds might not be enought to counter all these pluses. When does the window start? Link to comment Share on other sites More sharing options...
rolling Posted April 19, 2018 Share Posted April 19, 2018 First bought davita yesterday at 64... It is the first buyback window after the announcement of the sale of HCP and it has pulled back a lot. Low earnings multiple, lower tax rate, low net debt after the deal, cannibal, a big runaway for expansion (international), a growing client base and expectations of profit after achieving scale in international markets. It seems to me that the pricing headwinds might not be enought to counter all these pluses. When does the window start? Sorry, I meant buyback blackout window. Apparently, "regulations under which companies refrain from discretionary stock buybacks for about five weeks before reporting earnings through the 48 hours that follow". Link to comment Share on other sites More sharing options...
sleepydragon Posted April 20, 2018 Share Posted April 20, 2018 First bought davita yesterday at 64... It is the first buyback window after the announcement of the sale of HCP and it has pulled back a lot. Low earnings multiple, lower tax rate, low net debt after the deal, cannibal, a big runaway for expansion (international), a growing client base and expectations of profit after achieving scale in international markets. It seems to me that the pricing headwinds might not be enought to counter all these pluses. When does the window start? Sorry, I meant buyback blackout window. Apparently, "regulations under which companies refrain from discretionary stock buybacks for about five weeks before reporting earnings through the 48 hours that follow". So won't it better to buy while the company is not buying, which will be during the blackout window, or even after the window ends? Link to comment Share on other sites More sharing options...
sleepydragon Posted May 4, 2018 Share Posted May 4, 2018 https://finance.yahoo.com/news/davita-inc-1st-quarter-2018-200100882.html "New debt capacity: On March 29, 2018, we entered into an agreement to increase our borrowing capacity under our existing Senior Secured Credit Agreement. Pursuant to this agreement, the Company entered into an additional $995 million Term Loan A-2 which bears interest at LIBOR plus 1.00%. As of March 31, 2018 the Company had drawn an initial $452 million on Term Loan A-2. The Company has drawn and intends to continue to draw on this new debt capacity as needed for any share repurchases made prior to the closing of the sale of DMG. Share repurchases: During the quarter ended March 31, 2018, we repurchased a total of 4,197,304 shares of our common stock for approximately $298 million at an average price of $71.09 per share. We have also repurchased 4,350,135 shares of our common stock for $276 million at an average price of $63.44 per share from April 1, 2018 through May 2, 2018. As of May 2, 2018, we have a total of approximately $545 million in outstanding Board repurchase authorizations remaining under our stock repurchase program. These share repurchase authorizations have no expiration dates." Seems to me they are borrowing $900 millions to buy stocks. In one month 4/1 to 5/1, they bought back $276 million. They must be confident the DMG deal with close. I like that! Link to comment Share on other sites More sharing options...
tripleoptician Posted May 4, 2018 Share Posted May 4, 2018 "Share repurchases: During the quarter ended March 31, 2018, we repurchased a total of 4,197,304 shares of our common stock for approximately $298 million at an average price of $71.09 per share. We have also repurchased 4,350,135 shares of our common stock for $276 million at an average price of $63.44 per share from April 1, 2018 through May 2, 2018. As of May 2, 2018, we have a total of approximately $545 million in outstanding Board repurchase authorizations remaining under our stock repurchase program. These share repurchase authorizations have no expiration dates." Thats a pretty solid buyback in 4 months. Did I read correctly that this buyback is before cash from the DMG sale? Looks like they may run out of room on available $545 million room left for the year. I think we do fine here with this level of cannibalization Edit: sleepydragon u beat me to it! Link to comment Share on other sites More sharing options...
MrB Posted May 4, 2018 Share Posted May 4, 2018 Share buy backs: According to the Q they repurchased 4.2m shares for $71.09 on average in ALL of Q1 and 4.3m in the 1 month this Q at avg $63.44 Now if you look at a chart for Q1 it seems that there were only about 14 days in total right at the end of the Q where it got to $71 and lower, so this might indicate that they have a firm price up to which they're willing to buy back, which is likely around $70 Link to comment Share on other sites More sharing options...
mwtorock Posted May 4, 2018 Share Posted May 4, 2018 these are good moves to me. they are opportunistic about buying back, eg. they did not wait for the cash from the deal, they did not buy back at higher prices in Q1, they bought when the prices are far below intrinsic value like 70 or 64... Link to comment Share on other sites More sharing options...
MrB Posted May 4, 2018 Share Posted May 4, 2018 SEIU letter and AKF rebuttal letter mentioned in the call https://www.ahip.org/wp-content/uploads/2018/04/ESRD-Steering-Letter_4.16_FINAL_Embargoed.pdf http://www.kidneyfund.org/assets/pdf/advocacy/akf-letter-to-secretary-azar.pdf Link to comment Share on other sites More sharing options...
DooDiligence Posted May 4, 2018 Share Posted May 4, 2018 SEIU letter and AKF rebuttal letter mentioned in the call https://www.ahip.org/wp-content/uploads/2018/04/ESRD-Steering-Letter_4.16_FINAL_Embargoed.pdf http://www.kidneyfund.org/assets/pdf/advocacy/akf-letter-to-secretary-azar.pdf I may be biased but I like the rebuttal, and so does Mister Market. Link to comment Share on other sites More sharing options...
walkie518 Posted May 7, 2018 Share Posted May 7, 2018 On the call, Thirty also commented that the sale is still on track... Link to comment Share on other sites More sharing options...
rolling Posted May 7, 2018 Share Posted May 7, 2018 Well, it seems I made a mistake here. An happy mistake ;D from April 1 to May 2 the company spent 284M in share repurchases (I thought they couldn't), which adds to the 290M spent in the full 1st quarter, to a total of 574M for almost 5% of shares outstanding. Adjusted Net debt 31/03: 9.389M Net debt 31/12: 8.828M change: 277M+284M DMG sale: 4.900M interest expense: 114M This means that most cash generated by operations is currently being used in capex (growth and maintenance) and that share repurchases come from DMG sale. In other words, if capex is funded by operations, all DMG cash can be used to lower debt and share repurchases. Market cap: 174.1*66=11492M So, at current prices almost 17.5% of the company can still be bought back even while the company reduces 2.9B to current debt and keeps capex at current pace. Such a debt reduction would also bring some interest savings. Then we would have: EBIT: 1.55 (1.5-1.6) Interest expense: 360M taxes: 308M Net income: 882M Market cap: 9481M (82,5% of current market cap) Net debt: 6489M P/E 10.75 This is basically what is implied at current prices. A decent multiple for a steadily growing company (4.8% volume growth versus 1st quarter 2017). Any mistake? ps: I originally intended to do a quick 1 month trade with Davita. However I was bought out in another position I had opened a little later (2 weeks ago) and so I am now evaluating Davita as more of a long term position. Link to comment Share on other sites More sharing options...
walkie518 Posted May 7, 2018 Share Posted May 7, 2018 Well, it seems I made a mistake here. An happy mistake ;D from April 1 to May 2 the company spent 284M in share repurchases (I thought they couldn't), which adds to the 290M spent in the full 1st quarter, to a total of 574M for almost 5% of shares outstanding. Adjusted Net debt 31/03: 9.389M Net debt 31/12: 8.828M change: 277M+284M DMG sale: 4.900M interest expense: 114M This means that most cash generated by operations is currently being used in capex (growth and maintenance) and that share repurchases come from DMG sale. In other words, if capex is funded by operations, all DMG cash can be used to lower debt and share repurchases. Market cap: 174.1*66=11492M So, at current prices almost 17.5% of the company can still be bought back even while the company reduces 2.9B to current debt and keeps capex at current pace. Such a debt reduction would also bring some interest savings. Then we would have: EBIT: 1.55 (1.5-1.6) Interest expense: 360M taxes: 308M Net income: 882M Market cap: 9481M (82,5% of current market cap) Net debt: 6489M P/E 10.75 This is basically what is implied at current prices. A decent multiple for a steadily growing company (4.8% volume growth versus 1st quarter 2017). Any mistake? ps: I originally intended to do a quick 1 month trade with Davita. However I was bought out in another position I had opened a little later (2 weeks ago) and so I am now evaluating Davita as more of a long term position. Despite the noise, DaVita brings a lot of value to the US healthcare system and to patients. The services provided are absolutely necessary and life-extending despite the difficulties living with ESRD presents. Unless we can start printing and implanting kidneys inexpensively, there does not seem to be a better or even cheaper alternative anywhere on the horizon. Link to comment Share on other sites More sharing options...
gfp Posted May 12, 2018 Share Posted May 12, 2018 Seems from this filing that Berkshire is up to 22.1% of Davita. I haven't checked if the share count is the same and this is solely the result of DVA share repurchase activity. Reuters reports that BRK last reported a 20.2% stake in DVA on 8/11/2017. https://www.sec.gov/Archives/edgar/data/927066/000119312518161063/d585955dsc13da.htm *** well now I did check and the 2% increase in ownership percentage is solely resulting from DVA's share repurchases *** Link to comment Share on other sites More sharing options...
sleepydragon Posted May 12, 2018 Share Posted May 12, 2018 Seems from this filing that Berkshire is up to 22.1% of Davita. I haven't checked if the share count is the same and this is solely the result of DVA share repurchase activity. Reuters reports that BRK last reported a 20.2% stake in DVA on 8/11/2017. https://www.sec.gov/Archives/edgar/data/927066/000119312518161063/d585955dsc13da.htm *** well now I did check and the 2% increase in ownership percentage is solely resulting from DVA's share repurchases *** I think Berkshire signed an agreement with DVA of not buying more stocks Link to comment Share on other sites More sharing options...
gfp Posted May 12, 2018 Share Posted May 12, 2018 They have an agreement in place to not go over 25%. This looks like it will be ultimately breached through share repurchase activity, but I'm sure they will work something out. They don't seem too concerned with Berkshire as a large shareholder. Most of the side letter agreements are really to protect Ted and Berkshire from a Sokol-like trading situation. Basically, Ted can't buy or sell personal shares (he owns 1.4% of the company personally), without Warren's prior consent. Link to comment Share on other sites More sharing options...
NBL0303 Posted May 12, 2018 Share Posted May 12, 2018 They have an agreement in place to not go over 25%. This looks like it will be ultimately breached through share repurchase activity, but I'm sure they will work something out. They don't seem too concerned with Berkshire as a large shareholder. Most of the side letter agreements are really to protect Ted and Berkshire from a Sokol-like trading situation. Basically, Ted can't buy or sell personal shares (he owns 1.4% of the company personally), without Warren's prior consent. The Standstill Agreement, I believe, prevents them from purchasing shares to cross that threshold, I do not believe it prevents them from holding shares over that threshold, when the threshold was crossed via repurchases. I agree with you that is the purpose for many side letter type arrangements but I don't think that is the case with this one - there were some pretty unique things going on with Davita at that time and Berkshire was trying to accommodate them with this. Link to comment Share on other sites More sharing options...
ValueMaven Posted May 12, 2018 Share Posted May 12, 2018 still - I think this would be a great company inside the Berkshire family... Link to comment Share on other sites More sharing options...
Spekulatius Posted May 12, 2018 Share Posted May 12, 2018 still - I think this would be a great company inside the Berkshire family... I don’t think Thierry is ready to tap dance to Warren’s tune. Link to comment Share on other sites More sharing options...
ValueMaven Posted June 15, 2018 Share Posted June 15, 2018 I am a huge fan of Thierry right now...he gets that the street wants him to focus on its core business...buyback stock, and stay out of the headlines. Earnings yield on this is still so cheap. We just need the Optum deal to finally close, and the stock would ripe $15 - $20 points in no time. Link to comment Share on other sites More sharing options...
DooDiligence Posted July 7, 2018 Share Posted July 7, 2018 "Two California families awarded $253 million in lawsuit against dialysis corporation", https://www.fresnobee.com/news/local/article214205774.html --- This seems excessive. Do punitive damages often get reduced or eliminated? --- edit --- More background, https://www.denverpost.com/2018/06/30/verdict-davita-testimony-wrongful-deaths/ Link to comment Share on other sites More sharing options...
Cigarbutt Posted July 7, 2018 Share Posted July 7, 2018 "Two California families awarded $253 million in lawsuit against dialysis corporation", https://www.fresnobee.com/news/local/article214205774.html This seems excessive. Do punitive damages often get reduced or eliminated? More background, https://www.denverpost.com/2018/06/30/verdict-davita-testimony-wrongful-deaths/ The idea here is to try to discount the cost of doing business. Punitive damage awards are hard to predict and can be substantial. There are valid arguments in favor of punitive damages but a point can be made that amounts awarded sometimes seem excessive and have not been clearly shown to meet the underlying objectives. Especially true with the blockbuster punitive damages. Reform may be on the way. Something to consider is that, as I think that more dialysis and other comparable care will get covered by Medicare and "public" funds, capping damages "rules" may become more stringent. The large amounts are typically awarded by juries and one has to wonder if emotion plays over reason. What about the mindset of the typical jury starting his/her day reading the following article: https://nypost.com/2018/06/29/hospital-charges-18000-to-treat-baby-with-a-bottle-and-a-nap/ I wonder if one's judgement is not clouded then when comparing the large corporatiion to the beloved guy who worked hard all his life and used to impersonate Santa Claus. Concerning the merits of the cases, which may be irrelevant to this Board, the use of GranuFlo gives rises to potential questions. The defense side and expert witnesses used a shrewd strategy (and this is not pseudo-science or esoterics) and DaVita's "exposure" is significant as the ESRD population is at high risk of complications and mortality and dialysis is a high-risk procedure. The defense has to put together a reasonable thesis suggesting a link and reinforcing the potential bias described above. Don't get me wrong as I think that the business model has significant advantages and the results they report based on the CMS guidelines in terms of outcomes are relatively good but to reach financial target returns, DVA has to focus on costs and when drawing the line in some areas, this may be clearly be perceived as putting the safety of patients at risk. Historically, if you look at the regulatory legal profile (where most of the litigation risk lies IMO), DVA has been stretching the limits and the perception may be that the profit motive, at a certain point, may be detrimental to clinical results. Having discussed the above, blockbuster awards at first instance courts are typically appealed. Then you get re-trials, punitive damages are reduced or eliminated on appeal or, very often, "settlements" are reached. Typically settlement amounts are not disclosed but, from inference, amounts are often immaterial or a small fraction of the initial amounts mentioned in initial press releases. Hope this helps if you try to discount these "operating" costs in your valuation. Link to comment Share on other sites More sharing options...
DooDiligence Posted July 7, 2018 Share Posted July 7, 2018 "Two California families awarded $253 million in lawsuit against dialysis corporation", https://www.fresnobee.com/news/local/article214205774.html This seems excessive. Do punitive damages often get reduced or eliminated? More background, https://www.denverpost.com/2018/06/30/verdict-davita-testimony-wrongful-deaths/ The idea here is to try to discount the cost of doing business. Punitive damage awards are hard to predict and can be substantial. There are valid arguments in favor of punitive damages but a point can be made that amounts awarded sometimes seem excessive and have not been clearly shown to meet the underlying objectives. Especially true with the blockbuster punitive damages. Reform may be on the way. Something to consider is that, as I think that more dialysis and other comparable care will get covered by Medicare and "public" funds, capping damages "rules" may become more stringent. The large amounts are typically awarded by juries and one has to wonder if emotion plays over reason. What about the mindset of the typical jury starting his/her day reading the following article: https://nypost.com/2018/06/29/hospital-charges-18000-to-treat-baby-with-a-bottle-and-a-nap/ I wonder if one's judgement is not clouded then when comparing the large corporatiion to the beloved guy who worked hard all his life and used to impersonate Santa Claus. Concerning the merits of the cases, which may be irrelevant to this Board, the use of GranuFlo gives rises to potential questions. The defense side and expert witnesses used a shrewd strategy (and this is not pseudo-science or esoterics) and DaVita's "exposure" is significant as the ESRD population is at high risk of complications and mortality and dialysis is a high-risk procedure. The defense has to put together a reasonable thesis suggesting a link and reinforcing the potential bias described above. Don't get me wrong as I think that the business model has significant advantages and the results they report based on the CMS guidelines in terms of outcomes are relatively good but to reach financial target returns, DVA has to focus on costs and when drawing the line in some areas, this may be clearly be perceived as putting the safety of patients at risk. Historically, if you look at the regulatory legal profile (where most of the litigation risk lies IMO), DVA has been stretching the limits and the perception may be that the profit motive, at a certain point, may be detrimental to clinical results. Having discussed the above, blockbuster awards at first instance courts are typically appealed. Then you get re-trials, punitive damages are reduced or eliminated on appeal or, very often, "settlements" are reached. Typically settlement amounts are not disclosed but, from inference, amounts are often immaterial or a small fraction of the initial amounts mentioned in initial press releases. Hope this helps if you try to discount these "operating" costs in your valuation. Thanks Link to comment Share on other sites More sharing options...
frankhkii Posted July 10, 2018 Share Posted July 10, 2018 Chief Medical Officer from Davita firing back. https://www.denverpost.com/2018/07/09/385-5-million-verdict-shocking-davita-would-do-the-same-thing-again/ Link to comment Share on other sites More sharing options...
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