DaVita products may be unknown to most of you, yet the ownership structure could trigger your attention. And rightly so. Berkshire Hathaway - the conglomerate lead by the legendary investor Warren E. Buffett - holds more than 40% of the business. Let's find out why.

Investment Thesis

Beyond the guru holding structure, the company has a valid business model. As a leading provider of kidney care services, based in the US (Denver, Colorado) it can be a winner in the mounting tariffs war. Indeed the US imports more than two third of chemicals and pharmaceutical products from EU, Canada, Mexico and China, as per the US Census Bureau.

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DaVita can benefit from this reduced competition and consolidate its position in the internal market.

Healthcare Sector Overview and Growth Catalysts

The main business of DaVita is the chronic kidney disease (CKD) whose prevalence is rising globally.

Economic and epidemiological data underscore why kidney disease should be placed on the global public health agenda kidney disease prevalence is increasing globally and it is now the seventh leading risk factor for mortality worldwide. Moreover, demographic trends, the obesity epidemic and the sequelae of climate change are all likely to increase kidney disease prevalence further, with serious implications for survival, quality of life and health care spending worldwide

as per the a joint statement published in Nature Reviews Nephrology from from leading societies in the field - the International Society of Nephrology, European Renal Association and American Society of Nephrology.

Aging populations and non-communicable diseases like diabetes and hypertensions are the main driver. Patients will need dialysis and other related services will grow and will need it for longer.

When evaluating US healthcare market, reimbursement is often top of mind. On this regard the nature of the dialysis services provides a degree of stability somehow higher than other healthcare sub-sectors. Recent policy changes, in particular focusing on preventive care, could further expand DaVita's addressable market, with earlier diagnosis of CKD.

Business Overview

DaVita's moat is very wide. Indeed it has a market share of more than 36% for dialysis services in the United States. In particular it provides in-center hemodialysis, home dialysis, and related services such as vascular access management, along with physician services and operating clinics. The company's extensive network of clinics (more than 3'000), coupled with its focus on quality care, have established it as a major player in the kidney care market. It's integrated care model, gives it a competitive advantage allowing to coordinate care across the different states of the nephropathy. Of note, DaVita operates primarily in the United States - averaging 90% of revenue from this geography as presented in the great chart below How DaVita Makes Its Money.

Source: How DaVita Makes Its Money - GuruFocus

In case of recession the business is unlikely to suffer wide downturn. DaVita's business model is indeed resilient due to the essential nature of its services. Demand for dialysis is relatively inelastic, meaning it is not significantly affected by economic downturns. This provides a degree of stability to DaVita's revenue streams.

Financials & Balance Sheet

DaVita has demonstrated ability to grow both its top and bottom lines. Yet the compounded annual growth rates (CAGR) are more typical of a mature business.

Revenues in the last 10 years changed for a total of 28.50%, aka CAGR of a modest 2.82%. A similar scenario is seen in the Earnings from Continuous Operation that yielded a 10-year CAGR of 11.19%, but there's a twitch. The starting year, fiscal year 2015, was not a great year, performance-wise. It brought in just $481 million while fiscal-year 2016 was much more in line with the trend at $1191 million hence yielding a adjusted total growth of just 5.79% going into the $1250 million earned in the most recent fiscal year. For context it is a slim CAGR of 0.54%. Nonetheless the growth was there thanks to increasing patient volumes and strategic expansion movements.

The company's balance sheet is generally healthy, although debt levels should be carefully considered. In particular the cash position is at $846 millions while the net debt position is $11'200 million (or 11.2 billion). Free cash flow generation is a strength for DaVita, positive during the past decade and allowing for reinvestment in the business, acquisitions, and potential share repurchases, as displayed in the chart below.

Source: Ops CF, FCF, NI - GuruFocus

Valuation

When it comes to valuation the company appears to be a little more than fairly valued. From my perspective the business has to be considered accounting for its big debt load. The best metric for that is enterprise value (EV) that has this simple formula: market cap - cash + total debt. It is the metric preferred to an investor willing to buy all the business, so he/she will gain all the cash the company has but he/she will also have to pay all the debt. DaVita has a market cap of $11.45 billion but an EV of $24.64 billion. This makes it look less attractive according the famous metric EV/Sales which stands at 1.9.

From a Price to Earnings (PE) point of view the company is better positioned than peers with a current PE of 13.1 and a forward PE of 12.9. Price to Earnings growth (PEG) ratio is also better-than-average at 1.02.

Profitability is indeed not a big issue for this company. If it is true that it can fluctuate due to changes in reimbursement rates and operating costs, DaVita has been profitable for the past 10 years. It maintained healthy percentages recently with gross margin of 32.9%, operating margin 15.2% and profit margin of 7.3%.

One of the strength of that is the possibility to have cash to reinvest. During the past decade DaVita decided to return it to shareholders. Not surprisingly, since Warren Buffett (Trades, Portfolio) is the largest owner, the company chose the most tax-efficient way: buying back shares. As presented in the chart below total number of share outstanding declined constantly hence increasing the percentage ownership of existing shareholders. The shareholder yield is 6.3%. This ratio is calculated as the percentage of net stocks repurchased relative to total market cap. A positive number indicates more shares repurchased by the company compared to those issued (e.g. stock options granted to management).

Source: Shares Outstanding - GuruFocus

Risk to my Case

The primary risks facing DaVita include changes in government reimbursement rates, increased competition, and regulatory scrutiny.

DaVita receives about two thirds of US sales at government (primarily Medicare) reimbursement rates, with the remainder coming from commercial insurers. While commercial insurers represent only about 10% of the US patients treated, they represent nearly all of the profits generated by DaVita in the US dialysis business.

This niche market is not so much capital intensive, hence competition may increase in coming years. Yet the capillarity of the service offered and the quality of the treatments are well recognized by physicians that tend to stick whit what works. All in all it may be a decade before a serious contender can manifest.

Last but not least in the healthcare industry, litigation risks are always present and very hard to account for.

On a separate note it is worth noting that Mr. Warren Buffett (Trades, Portfolio) recently disclosed a trimming in its holding. On February 19, 2025, he sold 750,000 shares traded at a price of $154, which is a small yet relevant 2.1% trimming to its previous position of 35'892'479 shares in DaVita.

Conclusion

The company is one to keep an eye on, considering the moat it has in the niche of chronic kidney disease and the highly concentrated revenues billed within the US borders. It proved to be resilient during the past decade from a profitability angle, yet the top and bottom line growth rates yield some cautions when it comes to price. At the current multiples the company appears to be already more than fairly valued. The conclusion is that the recent trimming done by its biggest shareholder Warren Buffett (Trades, Portfolio), has a solid rationale.

This article first appeared on GuruFocus.