When reviewing the list of insider purchases this week, I was struck by the fact that three of the five companies that made our list had very recently announced large stock buybacks (Darden Restaurants, Nike and Chesapeake Energy) and a fourth one was a hungry cannibal having repurchased nearly 45% of its shares outstanding in the last four years. The buybacks for dialysis services company DaVita (DVA) were so large, I pulled up the 10-Qs for Q1 2018 and Q1 2022 from EDGAR to confirm that the data our automated systems had picked up was correct.
DaVita has been a long-term holding of Berkshire Hathaway (BRK.A) and it is speculated that portfolio manager Ted Weschler helped Berkshire build the position starting in Q4 2011 after Warren Buffett recruited both Ted Weschler and Todd Combs to join Berkshire. Ted was also responsible for Berkshire’s stake in Apple (AAPL) before Buffett decided to supersize that position.
Berkshire built their position in DaVita until November 2014, held the position unchanged through 2020 and then scaled back part of their position. They still hold 36.1 million shares, representing more than 38% of DaVita’s 94.6 million shares outstanding. DaVita’s last buyback announcement was in December 2021 when they announced their intention to acquire $2 billion worth of stock representing nearly 19% of DaVita’s market cap at announcement.
A combination of increasing revenue and increasing net income combined with these buybacks has helped the company grow its EPS from $0.93 in 2018 to $9.30 in 2021. Healthcare services is a difficult business and this is reflected in the company’s gross and net margins which came in at 30.68% and 7.77% during the trailing twelve months. It also does not help that the company is highly leveraged with nearly $11 billion in net debt. Capital leases represent $2.9 billion of that net debt.
The stock trades at a forward P/E of 10.64, a forward EV/EBITDA of 9.19 and is expected to grow revenue 5.4% to $11.81 billion this year. The company has been the subject of criticism from short sellers like Jim Chanos about how it uses a non-profit partially funded by DaVita to provide services to uninsured or underinsured patients. The company also recently lost a case in the Supreme Court again Marietta Memorial Hospital related to lower reimbursement rates.