Author Topic: DVA DaVita HealthCare Partners  (Read 215875 times)

MrB

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Re: DVA DaVita HealthCare Partners
« Reply #200 on: August 14, 2017, 10:15:55 AM »
@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.

 


Green King

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Re: DVA – DaVita HealthCare Partners
« Reply #201 on: August 15, 2017, 04:40:00 AM »
@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
GK

Foreign Tuffett

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Re: DVA DaVita HealthCare Partners
« Reply #202 on: August 16, 2017, 12:26:28 AM »

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.

MrB

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Re: DVA DaVita HealthCare Partners
« Reply #203 on: August 16, 2017, 04:03:21 AM »

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?

Foreign Tuffett

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Re: DVA DaVita HealthCare Partners
« Reply #204 on: August 16, 2017, 06:18:19 AM »

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.


Green King

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Re: DVA DaVita HealthCare Partners
« Reply #205 on: August 16, 2017, 06:34:23 AM »

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.
GK

Foreign Tuffett

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Re: DVA DaVita HealthCare Partners
« Reply #206 on: August 16, 2017, 07:06:11 AM »

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.

LC

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Re: DVA DaVita HealthCare Partners
« Reply #207 on: August 31, 2017, 09:16:43 AM »
https://www.youtube.com/watch?v=yw_nqzVfxFQ&t=604s

John Oliver bit on Davita. Take with a grain of salt of course
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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frankhkii

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Re: DVA DaVita HealthCare Partners
« Reply #208 on: August 31, 2017, 12:06:49 PM »
https://www.youtube.com/watch?v=yw_nqzVfxFQ&t=604s

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...

sleepydragon

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Re: DVA DaVita HealthCare Partners
« Reply #209 on: August 31, 2017, 12:15:45 PM »
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.