More Buys At DaVita: Is Buffett Betting on Medicare and Medicaid?

Warren Buffett’s Berkshire Hathaway continues to buy up shares in DaVita HealthCare Partners Inc (NYSE:DVA). Berkshire’s 13F reported 10.2 million shares at the end of the third quarter- a 10% increase from three months earlier- and after the most recent buys Buffett’s firm owns over 13.6 million shares. At the current price that would give Buffett about $1.5 billion invested in the company, making it one of his ten largest holdings by market value (see more stocks that Buffett owns $1 billion of). DaVita specializes in kidney dialysis treatments, including medical centers and lab services, and has a market capitalization of just over $10 billion.

About half of DaVita’s dialysis related revenue is paid by Medicare, meaning that the company is very sensitive to changes in the program including those which may come as a result of President Obama’s new health care plan. Another 16% is paid by Medicaid and Medicaid related programs. Aside from The Procter & Gamble Company (NYSE:PG) (which Buffett has been selling), DaVita HealthCare Partners Inc appears to be the largest healthcare related stock in Berkshire’s portfolio (and P&G would be better characterized as a “personal products” company which has little to no exposure to public policy). DaVita currently trades at 19 times trailing earnings; its revenue and earnings have been up moderately recently, but there’s little telling how relevant that will be to the company’s future performance. Wall Street analysts see growth continuing at least for the next year, and the forward P/E is 15.

There has been a ring of insider sales at DaVita by company officers and Board members beginning in early November (see a history of insider sales at the company). However, we’d note that most of these sales came at prices above $110, slightly higher than the current share price. In addition insider sales often are rational as they allow insiders to diversify their wealth away from the same company (and economic trends) that are responsible for a large portion of their income, and we think this particularly makes sense for insiders at healthcare companies. Still, investors should be aware of the sales.