The Reason Warren Buffet bought DaVita Healthcare Partners (NYSE:DVA)


DaVita Healthcare Partners (NYSE:DVA) stands as one of Buffet’s biggest stocks. Buffet’s Berkshire Hathaway (NYSE:BRK-A) has annual gains going up and above18% for the past 30 years. However, Berkshire Hathaway (NYSE:BRK-A) is associated with insurance even though it owns quite a hefty amount of stock in other public companies like Benjamin Moore, Dairy Queen, Burlington Northern Santa Fe railroad and Fruit of the Loom.

The 13F report for the quarter shows that Berkshire’s (NYSE:BRK-A) holding in DaVita Healthcare Partners (NYSE:DVA) stood at the ninth largest in its portfolio which values at around $2.7 billion. Berkshire (NYSE:BRK-A) owns over 17% of the company with 37.5 million of its shares. DaVita Healthcare Partners (NYSE:DVA) stands as one major dialysis provider in the U.S. catering to one third of the market.

Its administrative services are present in over 2,000 outpatient dialysis centers in the nation. It serves over 165,000 patients with 84 outpatient dialysis centers in 10 different countries other than the U.S. It is clear why anyone would want to invest in DaVita Healthcare Partners (NYSE:DVA). The major reason is that it is a sturdy company with services being provided to an increasing elderly population. Weschler states that DaVita Healthcare Partners (NYSE:DVA) provides excellent services compared to any other in the health care industry.

It also saves a lot of the industry’s money and offers growth with high capital returns. The top line of the company has been increasing over the decade while its bottom line has fluctuated a bit over the past couple of years. DaVita Healthcare Partners (NYSE:DVA) made a promising move with its 2012 acquisition of the company, the HealthCare Partners. This company aims to decrease the amount of cost of care and in turn focus on increasing the amount of positive outcomes.

The brand image of the company is healthy which is because of the acquisition of such a devoted company. However, DaVita Healthcare Partners (NYSE:DVA) isn’t a perfect stock. Its return on capital it has invested is below that of rival Fresenius Medical Care and has been declining for the past few years. The company’s gross and net margins have also been decreasing steadily. Other threats that DaVita Healthcare Partners (NYSE:DVA) faces are reimbursement rates at Medicare.

Nearly 85% of the patients use Medicare thus the rates of this product are enormous in conducting day to day activities. An investor shouldn’t purchase the stock of DaVita (NYSE: DVA  ) all because Berkshire Hathaway (NYSE: BRK-A) is an investor in it. A proper look at the companys financials should be given. Its P/E ratio is currently 24 with a forward looking P/E ratio of 19. Even though this isn’t much of a bargain, it isn’t overvalued either.

However if the company’s prospects seem reasonable then there is no reason not to invest in the stock. Smart investors know their risks and they also know that dividend stocks may affect their dividend paying counterparts in the long term.