DVA – DaVita HealthCare Partners

[vince]

Much appreciated

[MrB]

Any news here or just a rehash of old short thesis? Don't have access.

 

 

DaVita (DVA) Named Best Short Idea at Hedgeye, Sees 30% Downside - Bloomberg

https://www.streetinsider.com/Analyst+Comments/DaVita+%28DVA%29+Named+Best+Short+Idea+at+Hedgeye%2C+Sees+30%25+Downside+-+Bloomberg/14907524.html

“We think the trend in commercial patient volume, reimbursement, and margins are coming under pressure alongside regulatory problems. We see significant downside in the next 12 months as the company has little flexibility and apparently no plan except for repurchasing stock.”

Analyst is Tom Tobin

 

[Spekulatius]

Any news here or just a rehash of old short thesis? Don't have access.

 

 

DaVita (DVA) Named Best Short Idea at Hedgeye, Sees 30% Downside - Bloomberg

https://www.streetinsider.com/Analyst+Comments/DaVita+%28DVA%29+Named+Best+Short+Idea+at+Hedgeye%2C+Sees+30%25+Downside+-+Bloomberg/14907524.html

“We think the trend in commercial patient volume, reimbursement, and margins are coming under pressure alongside regulatory problems. We see significant downside in the next 12 months as the company has little flexibility and apparently no plan except for repurchasing stock.”

Analyst is Tom Tobin

 

I think it is noteworthy that the larger competitor Fresenius just had a significant earning reset.

[ValueMaven]

very different business models...

 

I've been buying a lot of DVA here recently...expecting a nice Q1 once the deal with UNH gets done...seems to me that the market is under-pricing the upside here ...  I think this one quickly trades to the high 60s, low 70s IMHO

[cubsfan]

I guess we know why it moved down now. Hope they get this done soon:

 

http://investors.davita.com/static-files/57510643-7d9b-4e1a-873e-b9fefff66b36

 

Deal reduced $500M.

[ValueMaven]

Yes - on the margin its a negative... even still the story doesnt change all that much.  Good for UNH for reworking the deal honestly...the valuation was always high...get it done, turn back into a pure-play and start buying back a ton of stock...

[walkie518]

I suppose what we're all waiting for now is a closing date

 

after the price decline, market seems to think they're not going to close?  so what if they didn't, not sure the stock should trade here anyway?

 

I imagine mgmt is taking advantage of the lower pricing to buy back with cash on hand?  anyone have any add'l thoughts to consider as we approach earnings?

[cubsfan]

I suppose what we're all waiting for now is a closing date

 

after the price decline, market seems to think they're not going to close?  so what if they didn't, not sure the stock should trade here anyway?

 

I imagine mgmt is taking advantage of the lower pricing to buy back with cash on hand?  anyone have any add'l thoughts to consider as we approach earnings?

 

That is what I am waiting for - this DMG deal has to close - but with the FTC shutdown, it could not happen.

Management is NOT buying back stock, as they are at their leverage limits - that has plenty to do with the low price.

On the last call (January) - they clearly indicated their priorities - with the DMG proceeds - first reduce debt significantly and then buy back lots of stock over time.

 

This DMG deal needs to happen.

[MrB]

Found this 21 Dec 18 article in the meantime. Isolated source, so not sure how much you can trust it and the Davita filing referred to in the article does not make any reference to the Nevada clinics specifically, so not sure what the connection with Nevada is based on.

 

https://www.pressreader.com/usa/las-vegas-review-journal/20181221/282179357192793

 

"Unitedhealth Group’s Optum is dropping plans to purchase the Davita Medical Group physician clinics in Nevada after the Federal Trade Commission investigated the deal’s compliance with antitrust regulations.

 

Davita, in a U.S. Securities and Exchange Commission filing last week, indicated that while Optum will continue with its planned purchase of Davita, it will carve out the Nevada clinics. That, with 2018 business performance and projections for 2019 performance, will reduce the price it will pay for Davita by $560 million to $4.34 billion."

 

Anyhow what one could potentially deduce is that a) the significant reduction in the deal value is partly for some assets being excluded, so not just reduced performance, which is what I originally thought and I did not like that. Also b) I would assume that the FTC process would work more or less as follows, review, conditional approval, conditions fulfilled and then approval.

 

So it tells me that the deal was at that point (21 Dec) probably close to final review and hopefully approval, which would put it on management's Q1 timeline, but then government shutdown happened. I think in some total looks positive to me and probably indicates shutdown being the main holdup.

[dwy000]

Found this 21 Dec 18 article in the meantime. Isolated source, so not sure how much you can trust it and the Davita filing referred to in the article does not make any reference to the Nevada clinics specifically, so not sure what the connection with Nevada is based on.

 

https://www.pressreader.com/usa/las-vegas-review-journal/20181221/282179357192793

 

"Unitedhealth Group’s Optum is dropping plans to purchase the Davita Medical Group physician clinics in Nevada after the Federal Trade Commission investigated the deal’s compliance with antitrust regulations.

 

Davita, in a U.S. Securities and Exchange Commission filing last week, indicated that while Optum will continue with its planned purchase of Davita, it will carve out the Nevada clinics. That, with 2018 business performance and projections for 2019 performance, will reduce the price it will pay for Davita by $560 million to $4.34 billion."

 

Anyhow what one could potentially deduce is that a) the significant reduction in the deal value is partly for some assets being excluded, so not just reduced performance, which is what I originally thought and I did not like that. Also b) I would assume that the FTC process would work more or less as follows, review, conditional approval, conditions fulfilled and then approval.

 

So it tells me that the deal was at that point (21 Dec) probably close to final review and hopefully approval, which would put it on management's Q1 timeline, but then government shutdown happened. I think in some total looks positive to me and probably indicates shutdown being the main holdup.

 

Nice find MrB.    So what happens with the Nevada clinics?  Sold to someone else?  I can't imagine it makes economic sense to continue operating this small subset on its own.  If sold to someone else there might be additional proceeds down the road to offset some of the Optum decline.

[walkie518]

Found this 21 Dec 18 article in the meantime. Isolated source, so not sure how much you can trust it and the Davita filing referred to in the article does not make any reference to the Nevada clinics specifically, so not sure what the connection with Nevada is based on.

 

https://www.pressreader.com/usa/las-vegas-review-journal/20181221/282179357192793

 

"Unitedhealth Group’s Optum is dropping plans to purchase the Davita Medical Group physician clinics in Nevada after the Federal Trade Commission investigated the deal’s compliance with antitrust regulations.

 

Davita, in a U.S. Securities and Exchange Commission filing last week, indicated that while Optum will continue with its planned purchase of Davita, it will carve out the Nevada clinics. That, with 2018 business performance and projections for 2019 performance, will reduce the price it will pay for Davita by $560 million to $4.34 billion."

 

Anyhow what one could potentially deduce is that a) the significant reduction in the deal value is partly for some assets being excluded, so not just reduced performance, which is what I originally thought and I did not like that. Also b) I would assume that the FTC process would work more or less as follows, review, conditional approval, conditions fulfilled and then approval.

 

So it tells me that the deal was at that point (21 Dec) probably close to final review and hopefully approval, which would put it on management's Q1 timeline, but then government shutdown happened. I think in some total looks positive to me and probably indicates shutdown being the main holdup.

 

Nice find MrB.    So what happens with the Nevada clinics?  Sold to someone else?  I can't imagine it makes economic sense to continue operating this small subset on its own.  If sold to someone else there might be additional proceeds down the road to offset some of the Optum decline.

I suppose urgency to sell the Nevada clinics is dictated by profitability?

[cubsfan]

I'd say they are just non-core assets. DaVita proved they are NOT very good at running the DMG business, so get out of all of it as quick as you can.

[walkie518]

didn't find anything so interesting regarding the quarter except the MA rates are likely to improve

 

diluted share count, however, has been reduced from 184m to 166m

 

sure, perhaps they overpaid a little...but if DVA hits the lower end of cash flow from ops guidance ($1.375B) for 2019 without buybacks, the stock trades at 8x 2019 op cash flow

 

my feeling is that op cash flow will improve after deal closes, and of course, share count will continue to shrink, likely at a faster clip

 

I suppose the Chanos et al overhang still exists? 

[5xEBITDA]

They are really downplaying the AKF legislation issue...it is a legitimate loophole in reimbursement laws they have built the last ~10 years of their business on

[cubsfan]

There is always someone taking potshots at DaVita - unions, insurance payers, etc - that's not going away anytime soon.

[walkie518]

They are really downplaying the AKF legislation issue...it is a legitimate loophole in reimbursement laws they have built the last ~10 years of their business on

DaVita won the last suit ... the CA governor vetoed for very good reason

 

The new bill is not so far from the last one...largely sponsored by health insurers who don't want to provide coverage, this new one is likely no different

 

Winning by hurting people doesn't seem to be the way of the future but the dark side of capital markets

[cubsfan]

They are really downplaying the AKF legislation issue...it is a legitimate loophole in reimbursement laws they have built the last ~10 years of their business on

DaVita won the last suit ... the CA governor vetoed for very good reason

 

The new bill is not so far from the last one...largely sponsored by health insurers who don't want to provide coverage, this new one is likely no different

 

Winning by hurting people doesn't seem to be the way of the future but the dark side of capital markets

 

Yup, it's bogus and won't go away anytime soon, with each new administration, they'll take another shot. But the AKF keeps the system working well

for patients who can not afford these costly lifesaving treatments. The insurance companies get plenty of benefits, given the way the system is set up.

[ander]

FOCUS-U.S. seeks to cut dialysis costs with more home care versus clinics

 

https://finance.yahoo.com/news/focus-u-seeks-cut-dialysis-120000932.html

[Spekulatius]

Transplants are limited by the availability of transplant organs. the problem with home care is complexity and compliance. A lot of dialysis patients have issues (drug addiction, tendency of negligence, mental etc) and home care requires skill , compliance, hygiene and a partner who can support, when something goes wrong. A lot of patients probably couldn’t do the necessary task them selves at this point or wouldn’t comply. While home care is preferable from a clinical POV (the more frequent treatment cycle causes less issues), the home dialysis systems need to be simplified from a users perspective to increase the addressable market.

[cubsfan]

Transplants are limited by the availability of transplant organs. the problem with home care is complexity and compliance. A lot of dialysis patients have issues (drug addiction, tendency of negligence, mental etc) and home care requires skill , compliance, hygiene and a partner who can support, when something goes wrong. A lot of patients probably couldn’t do the necessary task them selves at this point or wouldn’t comply. While home care is preferable from a clinical POV (the more frequent treatment cycle causes less issues), the home dialysis systems need to be simplified from a users perspective to increase the addressable market.

 

+1 - great insights

[MrB]

Transplants are limited by the availability of transplant organs. the problem with home care is complexity and compliance. A lot of dialysis patients have issues (drug addiction, tendency of negligence, mental etc) and home care requires skill , compliance, hygiene and a partner who can support, when something goes wrong. A lot of patients probably couldn’t do the necessary task them selves at this point or wouldn’t comply. While home care is preferable from a clinical POV (the more frequent treatment cycle causes less issues), the home dialysis systems need to be simplified from a users perspective to increase the addressable market.

Expanding on the above the sad reality is that the average patient became a dialysis patient because they've not been good at managing certain complexities of life in a disciplined manner e.g. bad lifestyle choices and sticking to a healthy diet. Now you're expecting them to manage home dialysis. Easier said than done.

[rogermunibond]

George Church lab at Harvard is using CRISPR to create transgenic porcine hearts, kidneys etc for transplant.

 

Still years off at scale but pretty neat.

[rogermunibond]

Azar wants to promote in-home dialysis away from centers.

 

https://www.fiercehealthcare.com/payer/azar-hhs-rethinking-payments-to-expand-access-to-home-dialysis-kidney-transplants

[DooDiligence]

My Mom gets periodic antibiotic infusions at home.

 

Techs frequently don't show up on time or they show up but don't have what's needed to do the treatment.

 

She prefers going to the hospital to have it done

 

Maybe in home dialysis will work though.

[walkie518]

In the Far East, I believe PD is the norm.  In the US, however, in-center HD is--maybe for good reason, maybe not. 

 

90% of patients are gov't funded since Nixon signed into law.  We all know that these patients are lowest margin for DVA and those covered by private insurance keep the lights on.

 

Given that a portion of the business might shift away from in-center to inventory management and drug/dialysate reimbursement, I wonder how the economics could not be better for DaVita? More reimbursement for admin and drug and less spend on in-person care?

 

Has anyone done an analysis of these economics?