Why Warren Buffett Can’t Get Enough of DaVita

Yesterday, Warren Buffett’s Berkshire Hathaway publicly disclosed a new Form 4 filing, in which it revealed that it had increased its exposure at DaVita HealthCare Partners Inc (NYSE:DVA). Berkshire purchased just under 3.7 million shares, bringing its total holdings in the healthcare company to 35.1 million shares. The shares were purchased at prices ranging from $53.24 to $55.98, and with this latest acquisition, Berkshire Hathaway now owns approximately 16.5% of DaVita, one of the nation’s leading kidney care specialists.

Warren Buffett portrait

The purchase of DaVita shares comes just a few days after the firm announced its third quarter results. During the conference call the company’s CEO made some rather dramatic statements such as: “I want to remind you that if there are significant cuts, we will be forced to close a number of centers.”

The statement continued emphasizing the difficulties 2014 will bring, as the following excerpt explains: “In addition to the Medicare cuts that may happen, we also have potential hits due to increased commercial rate pressure and the potential impact of the exchanges, and so we will be looking to do some expense pruning wherever we can, although we cannot put a number on that at this time.

But why would Warren Buffett add to its holdings of DaVita with such a grim outlook?

The answer is actually quite simple: long-term investment. Since share prices dropped around 4% following the conference call, Berkshire Hathaway took advantage of the situation to increase its holdings at a reduced price. The uncertainties DaVita is facing are short-term, while its long-term projections remain intact, thus Berkshire’s acquisition makes sense.

Apart from Berkshire Hathaway, which is by far the firm with the largest holdings in DaVita (of those we track), Alan Fournier’s Pennant Capital Management has a large position here too. Other hedge funds, such as William B. Gray’s Orbis Investment Management, D.E. Shaw, and Jeffrey Gates’ Gates Capital Management, hold more than 1 million shares of common stock each.

Disclosure: none