The filing reporting the position increase was submitted by Ted Weschler, one of Buffett’s two portfolio managers he hired over the past several years. Weschler bought the shares in a series of four transactions taking place from Dec. 5 through Dec. 9, at prices ranging from $57.11 to $59.87 per share.
Weschler has been building the DaVita holding in each quarter since the fourth quarter of 2011, when shares traded at an average of $36. The two companies have agreed that Berkshire will not acquire more than 25% of DaVita without DaVita’s approval.
DaVita continues to command a greater share of Weschler’s allotment of management capital at Berkshire. After both of the new managers outperformed the market in 2012 by double-digit margins, Buffett increased the funds managed by each to almost $5 billion. The DaVita stake at Weschler’s average buy price is worth approximately $1.7 billion, representing about 34% of his funds.
“Todd Combs and Ted Weschler, our new investment managers, have proved to be smart, models of
integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect cultural fit,” Buffett bragged about the two in his 2012 annual letter.
DaVita is a kidney care company operating 2,042 outpatient dialysis centers in the U.S. and 66 in 10 other countries. In November last year it merged with HealthCare Partners, one of the nation’s largest medical group and physician network companies, and changed its name to DaVita HealthCare Partners Inc.
In the past five years, DaVita grew per-share revenue at a rate of 11.3%, EBITDA at 13%, free cash flow at 24.1% and book value at 17.1% annually. The company in 2012 posted 14.1% return on equity and 2.2% return on assets, a decline from 22.3% and 3.3%, respectively, the previous year. Its gross margin was 31.9%, up slightly from 31.2% for 2011.
DaVita 10-year revenue and earnings history:
In addition, the Peter Lynch chart suggests that DaVita is significantly overvalued at this time:
DaVita is currently priced close to its 10-year high around $62.17, with a P/E ratio of 21.1, P/B ratio of 3.1 and P/S ratio near a two-year low at 1.1. It does not pay a dividend.
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