DVA – DaVita HealthCare Partners

[ander]

He said in the interview he’s been short for 2 years. He alluded to the court case in FL being a game-changer in that it reference a case which was unsealed this summer where a AKF employee as a whistleblower said they were steering patients to DVA which would be fraud. This has been previously reported. But this would be the AKF in violation. Also, the DOJ decided not to pursue the case. There are also legitimate whistleblower cases but also illegitimate ones where an employee intentionally commits a bad act and then whistleblows on the employer (not saying that’s what happened here).

 

See link re: summary of lawsuit.

https://www.modernhealthcare.com/legal/whistleblower-alleges-davita-fresenius-involved-kickback-scheme

 

[ander]

Quite comical that the investment community missed this part I highlighted below. They finished the $2 B buyback and have much more to do. Even today's analyst notes are getting the share count wrong. Still a lot more upside with base business showing stabilization and improvement. The overhangs are the regulatory / ballot initiatives but the dialysis industry has done a good job making the obvious case on behalf of these very sick patients (the structure was set up by the government decades ago re: medicare subsidizing commercial payors).

 

 

I just spent time going through their deck in more detail - I didn't think that their leverage was already 3.4x ND / EBITDA as they stated at the Capital Markets Day but needed to understand how they were calculating the number. There's a footnote on the last page which basically explains in the new credit agreement they can only count $750 million of the cash on their balance sheet towards the ND portion of the calc. Based on my numbers (post the share buybacks done), they have closer to $1.4 billion of cash on the balance sheet, so the leverage is really a lot lower. To get to 3.5x ND / EBITDA, they have about $850 million of additional share buybacks left to do. Pretty interesting.

[cubsfan]

Quite comical that the investment community missed this part I highlighted below. They finished the $2 B buyback and have much more to do. Even today's analyst notes are getting the share count wrong. Still a lot more upside with base business showing stabilization and improvement. The overhangs are the regulatory / ballot initiatives but the dialysis industry has done a good job making the obvious case on behalf of these very sick patients (the structure was set up by the government decades ago re: medicare subsidizing commercial payors).

 

 

I just spent time going through their deck in more detail - I didn't think that their leverage was already 3.4x ND / EBITDA as they stated at the Capital Markets Day but needed to understand how they were calculating the number. There's a footnote on the last page which basically explains in the new credit agreement they can only count $750 million of the cash on their balance sheet towards the ND portion of the calc. Based on my numbers (post the share buybacks done), they have closer to $1.4 billion of cash on the balance sheet, so the leverage is really a lot lower. To get to 3.5x ND / EBITDA, they have about $850 million of additional share buybacks left to do. Pretty interesting.

 

So the current share count is 131M - correct? ......and with another $2B @ $70/share, they can get the count down to 100M?

 

 

[ander]

I have a slightly lower number than 131 million shares but let’s assume 131. The $2 billion reload we don’t know exact timing. But what’s much more likely based on what they said is that they typically have about $500 million cash on the balance sheet. So if they’re at about $1 billion today that’s an additional $500 million for buyback soon. Plus another more from FCF generation in current quarter - maybe another $150 million or so. So about $650 million in share repurchases in the near term.

 

The mistake analysts are making in there reports is that they’re not even using the ~130 million share count — that’s already been done! The stock should grind higher as supply comes out but has failed to re-rate multiple times in recent years. But the operating environment is likely to see acceleration into 2021 which helps.

[Happy]

From the call:

Joel DaVita: "So the ending share count at the end of Q3 was just under 134 million, 133.9 million. Remember that excludes the shares we bought back since the quarter ended."

 

Joel Ackerman: "Since Capital Markets Day, we purchased an additional 8.9 million shares at an average price of $58.90 per share. As a result of these purchases, we've reduced our share count by approximately 36.9 million shares or 22% since the close of the DMG transaction."

 

So it seems unclear how many shares they already bought back in Q4 to get to the exact sharecount, unless you know what the exact sharecount was at the close of the DMG transaction.

[ander]

From the call:

Joel DaVita: "So the ending share count at the end of Q3 was just under 134 million, 133.9 million. Remember that excludes the shares we bought back since the quarter ended."

 

Joel Ackerman: "Since Capital Markets Day, we purchased an additional 8.9 million shares at an average price of $58.90 per share. As a result of these purchases, we've reduced our share count by approximately 36.9 million shares or 22% since the close of the DMG transaction."

 

So it seems unclear how many shares they already bought back in Q4 to get to the exact sharecount, unless you know what the exact sharecount was at the close of the DMG transaction.

 

That’s incorrect. It’s in the earnings press release. “ In addition to the share repurchases described above, we have also repurchased 4,283,376 shares of our common stock for $246 million at an average cost of $57.32 per share from October 1, 2019 through November 4, 2019. Effective November 4, 2019, our Board of Directors terminated all remaining prior share repurchase authorizations available to us and approved a new share repurchase authorization of $2 billion.”

[5xEBITDA]

Is the market really so inefficient that it is mispricing the share count of a $20 billion Company with over a dozen sell side analysts...?

[ander]

Is the market really so inefficient that it is mispricing the share count of a $20 billion Company with over a dozen sell side analysts...?

 

Apparently yes. They missed the footnote from the investor day in September (or at least at a minimum didn’t appreciate the implication) and hence the substantial price move up.

And apparently still so. Check the analyst notes.

It’s like the old economics assumption joke that the dollar bill isn’t on the sidewalk because someone else would have already picked it up. Large market cap and well covered increases the odds the dollar bill isn’t there but doesn’t mean that it’s not there.

 

[5xEBITDA]

Is the market really so inefficient that it is mispricing the share count of a $20 billion Company with over a dozen sell side analysts...?

 

Apparently yes. They missed the footnote from the investor day in September (or at least at a minimum didn’t appreciate the implication) and hence the substantial price move up.

And apparently still so. Check the analyst notes.

It’s like the old economics assumption joke that the dollar bill isn’t on the sidewalk because someone else would have already picked it up. Large market cap and well covered increases the odds the dollar bill isn’t there but doesn’t mean that it’s not there.

 

I don't buy it, but that's just my take. After going through several analyst notes to check this out it is evident that some are using reported share counts as of 9/30 while some are using pro-forma share counts that take into consideration the subsequent buybacks, but 100% of analysts are modeling in substantial buybacks through the next several years.

 

Besides, I don't think the analyst community is "the market". Sell side notes can have mistakes or things that are overlooked, but with a Company this large the market is going to figure it out anyway.

[cubsfan]

Anybody know what's up with DaVita?

 

Just a short squeeze because of Goldman upgrade??

[Charlie]

https://www.fool.com/earnings/call-transcripts/2020/02/11/davita-dva-q4-2019-earnings-call-transcript.aspx

 

Cheers!

[cubsfan]

A real cannibal - Munger would be proud.

 

Down to 125M shares from 215M in a just a couple of years.

I wonder if Chanos figured that one out?

[DooDiligence]

A real cannibal - Munger would be proud.

 

Down to 125M shares from 215M in a just a couple of years.

I wonder if Chanos figured that one out?

 

Maybe he'll start shorting again?

Davita could loan him the shares.

 

I screwed up & panic sold mine before the turn.

[mwtorock]

This is about fairly valued now. It is an election year and political impact on healthcare is not very predictable. If i am short, i would wait for a pullback to close the position, unless of cause someone believes it is an insurance fraud.

[cubsfan]

 

Davita could loan him the shares.

 

I screwed up & panic sold mine before the turn.

 

Dude - it's been a rough, rough ride, so hard to blame you!

 

I sure hope Chanos starts shorting again. Love to see another loaded up buyback. Geez, they bought back 6% of the shares in 1 quarter.

[ander]

The headwinds I mentioned below have subsided and the tailwinds of Medicare Advantage have become the focus re: the substantial likely benefit in the coming years. There is substantial capacity for additional share buybacks. Onwards and upwards.

 

 

Quite comical that the investment community missed this part I highlighted below. They finished the $2 B buyback and have much more to do. Even today's analyst notes are getting the share count wrong. Still a lot more upside with base business showing stabilization and improvement. The overhangs are the regulatory / ballot initiatives but the dialysis industry has done a good job making the obvious case on behalf of these very sick patients (the structure was set up by the government decades ago re: medicare subsidizing commercial payors).

 

 

I just spent time going through their deck in more detail - I didn't think that their leverage was already 3.4x ND / EBITDA as they stated at the Capital Markets Day but needed to understand how they were calculating the number. There's a footnote on the last page which basically explains in the new credit agreement they can only count $750 million of the cash on their balance sheet towards the ND portion of the calc. Based on my numbers (post the share buybacks done), they have closer to $1.4 billion of cash on the balance sheet, so the leverage is really a lot lower. To get to 3.5x ND / EBITDA, they have about $850 million of additional share buybacks left to do. Pretty interesting.

[ander]

It looks like the company is become a FCF machine - by focusing on managing down capex as they highlighted on Investor Day plus good cost control, DVA is starting to ton cash. The thesis is finally starting to play out. Plus Proposition 23 in CA also got shut down, so another big positive for DVA looking forward. And you have tailwinds of MA in 2022 from the Cures Act. I'm getting to over $10 per share for 2022. Use to trade at a premium to market but has been thrown to the wayside. I get to substantial upside from here.

 

Any thoughts as to why the re-rating shouldn't continue?

[ValueMaven]

Weschler nailed this one.  Great example of tuning out the crowd and sticking your thesis.  Chanos was screaming fraud as loud as he possibly could.  Even claimed that DVA was de-frauding some of BERK's insurance operations.  I believe Weschler said once he has studied the dialysis industry for the past 30 years. 

 

BERK has a paper gain of $3-$4B at this point...they own what -- 25% - 30% of shares o/s

[cubsfan]

Yup, best thing they ever did was sell HCP and do the tender offers. Share count now down 100M shares in about 5/6 years.

I think we are about 120M shares now from 217M. Also with 5M shares short, it gets pretty painful for shorts as the guidance gets upped.

 

https://www.macrotrends.net/stocks/charts/DVA/davita/shares-outstanding

 

At the high end of the guidance, it still looks fairly reasonable for a minimal rev growth situation.

 

You have around 9X FCF on market cap. Company is levered, but demand doesn't change. If anything, this obesity problem continues

to grow revenue.  IF you are believer in low interest rates for the next few years, debt continues to get extend and tender offers continue.

 

Weschler was actually involved for years with the Grace dialysis unit before it was sold to Fresenius. He understands the business and owns 2M shares.

[ander]

Thx for the feedback. It feels like we're in the middle of a re-rating / inflection point for the company. After being up over 100% on this, I was rechecking my thesis from scratch on it. I was contemplating selling / reducing, but no way since it's easy to see how this is a $150 stock and possible $200 in the next year or so. Makes sense to continue the share buybacks at today's ~$100 share price.

[Spekulatius]

COVID-19 is good for the business. Some of the survivors have shot kidneys and require dialysis for the rest of their lives.

[ander]

COVID-19 is good for the business. Some of the survivors have shot kidneys and require dialysis for the rest of their lives.

 

I spoke to a nephrologist a few weeks ago. The whole situation is sad.

From a patient perspective, he said so far it's been a neutral in the short-term as several of his patients have passed away from Covid-related deaths, but he has had an equal increase from Covid-survivors with accelerated kidney damage. Long-term he thinks that he will unfortunately have more patients (of course good for DVA, but I don't like to think of it that way). My projections do not include this additional increase.

[manuelbean]

Hi guys, I'm not sure if this was discussed here before, but is anyone familiar with Hemodiafiltration (HDF)?

 

I know that Fresenius uses that technology in Europe, but I think that due to the FDA, they never brought it to the USA.

 

Nephros, a small company that I'm researching, has that technology, but after working with DaVita and RRI a few years ago, it was too complicated and never got any traction. They're back at it with a revised model and I'm trying to understand why haven't other players introduced the HDF technology in the USA.

 

Thanks to anyone who can help me.

 

 

[no_free_lunch]

Did anyone else get class action lawsuit settlement paperwork?  It appears we are entitled to .98 per share if purchased before October 2017.  Anyone following through on this?

[DooDiligence]

Did anyone else get class action lawsuit settlement paperwork?  It appears we are entitled to .98 per share if purchased before October 2017.  Anyone following through on this?

 

I got one, gave it a quick look & threw it in the trash.

 

The narrative around these lawsuits seems conflicted.

 

Prove me wrong.

 

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www.denverpost.com/2017/02/22/davita-dialysis-patients-lawsuit/

 

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www.scientificamerican.com/article/kidney-dialysis-is-a-booming-business-is-it-also-a-rigged-one1/

 

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"The Omnibus Budget Reconciliation Act (OBRA) of 1981 included the Medicare secondary payer (MSP) provision. MSP provides that, if a beneficiary has insurance other than Medicare, then the other insurer is responsible for medical costs prior to Medicare. OBRA 1981 set the MSP period at 12 months from the date of Medicare entitlement. Subsequently, it was raised to 18 months in 1990, and then 30 months in 1997."

 

www.ncbi.nlm.nih.gov/pmc/articles/PMC4194691/