DaVita HealthCare Partners Inc (DVA), Fresenius Medical Care AG & Co. (ADR) (FMS): How to Profit From Obesity

Moreover, both companies trade at reasonable multiples of EBITDA. DaVita trades at 8 times EBITDA and Fresenius at 9 times EBITDA. If you assume that each company can eventually turn 50% of EBITDA into earnings — a safe assumption for most companies — DaVita trades at a much more attractive 16 times no-growth earnings and Fresenius at 18 times no-growth earnings. Broken out this way, both stocks look a lot more attractive.

Bottom line

Lower Medicare reimbursement rates will definitely impair DaVita’s and Fresenius’ profitability, but the long-term economics of both businesses are still secure. It is usually a safe bet to buy two companies that will dominate an industry with a long runway for growth — DaVita and Fresenius fit that profile.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article How to Profit From Obesity originally appeared on Fool.com and is written by Ted Cooper.

Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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