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Davita Kidney Dialysis (DVA) : A Buffett - Backed Healthcare Powerhouse or a Hidden Gem?
Mar.18, 2025, 1:36 AM ET author: luckystock
If you're looking for a steady, cash-generating healthcare stock, DaVita Inc. (NYSE: DVA) might be on your radar. As one of the two dominant players in the U.S. dialysis industry, DaVita has built a reliable business with strong margins, consistent cash flow, and an aggressive share buyback program. But with limited growth, high debt, and potential medical breakthroughs that could threaten dialysis demand, is DVA still a solid long-term investment?
Let’s break it down.
Berkshire Hathaway: The Buffett Factor
One of the most compelling reasons to pay attention to DaVita? Warren Buffett’s Berkshire Hathaway owns nearly 44% of the company.
Berkshire has been a major shareholder since 2011, with Ted Weschler, one of Buffett’s key portfolio managers, leading the investment. Berkshire has consistently held and even increased its stake in DaVita over the years, signaling long-term confidence in the company’s fundamentals.
However, in early 2025, Berkshire trimmed its position, selling 750,000 shares after DaVita’s stock hit all-time highs. This move spooked investors, contributing to a sharp 13% drop in the stock. But here’s the key takeaway—Berkshire still owns over $5 billion worth of DVA shares.
Why This Matters
- Berkshire’s ownership provides downside protection. Buffett’s firm doesn’t make short-term bets. The fact that they continue holding a massive stake suggests they believe DaVita is undervalued and a stable cash-flow generator.
- Share buybacks could increase Berkshire’s ownership. Since DaVita is aggressively repurchasing shares, Berkshire’s stake naturally grows over time. This means Buffett’s firm could end up owning an even larger portion of the company without buying more shares—a bullish signal for long-term investors.
- Berkshire’s selling isn't necessarily bearish. The recent sale was likely a routine portfolio adjustment rather than a vote of no confidence. Buffett and Weschler often trim positions to stay within regulatory limits when their ownership percentage grows too large.
Bottom line? Berkshire’s continued involvement is a huge vote of confidence for DaVita. If they ever fully exited the stock, that would be a red flag—but for now, their deep-rooted position should reassure long-term investors.
Strong Fundamentals, But Slower Growth Ahead
DaVita ended 2024 on a high note, reporting $12.8 billion in revenue (up 5.6% from 2023) and $936 million in net income (a 35% jump). EPS hit $10.73, significantly higher than $7.42 in 2023.
One of the biggest drivers of earnings growth? DaVita’s massive share buyback program. In 2024 alone, they repurchased 9.8 million shares, reducing the total share count by over 10%. This has been a key factor in boosting EPS and making each remaining share more valuable.
The issue? Limited organic growth.
- The U.S. dialysis patient population has barely rebounded post-COVID.
- Future growth might only slightly outpace mortality rates.
- DaVita’s 2025 guidance projects just ~11% EPS growth, mostly driven by price increases rather than more patients.
While the business remains highly profitable, the lack of organic expansion means DaVita needs to keep cutting costs, raising prices, and buying back shares to fuel EPS growth.
How Does It Compare to Fresenius?
DaVita’s biggest competitor, Fresenius Medical Care (NYSE: FMS), is the world’s largest dialysis provider, with over 4,000 clinics worldwide versus DaVita’s ~3,000.
However, DaVita beats Fresenius in profitability.
- DaVita’s net margin: 7% (2024)
- Fresenius’ net margin: 2.8%
Fresenius has a broader global presence and a product division (they make dialysis machines). DaVita, on the other hand, is purely focused on dialysis services—which allows it to be more efficient and cost-conscious.
Both companies are adapting to changing industry trends:
- DaVita is closing underperforming U.S. clinics to optimize its footprint.
- Fresenius is exiting Latin American markets, and DaVita acquired many of these clinics for $300 million—expanding its international reach.
At the end of the day, DaVita is the more U.S.-centric, shareholder-focused play, while Fresenius is a lower-margin, global healthcare giant.
Major Risks: GLP-1 Drugs & Policy Changes
The biggest wildcard for DaVita? Breakthrough diabetes and weight-loss drugs like Ozempic and Wegovy.
Recent studies show that GLP-1 drugs could slow the progression of kidney disease, meaning fewer people may eventually need dialysis. The market freaked out when these findings were announced in late 2023, and DaVita’s stock plunged 17% in one day.
The reality? It’s too early to tell how much impact these drugs will have. Even if GLP-1s reduce dialysis demand by 10-20% over the next decade, DaVita still has a strong position as the second-largest player in an essential healthcare sector.
Another potential risk? Medicare reimbursement changes.
- About 67% of DaVita’s revenue comes from government programs like Medicare.
- If the government cuts reimbursement rates, DaVita’s margins could shrink.
So far, DaVita has navigated policy risks well, but investors should keep an eye on future legislation.
Valuation: Cheap or Fairly Priced?
DaVita is not a high-growth stock, but it’s cheap for what it offers.
- P/E ratio: ~13x earnings
- EV/EBITDA: ~9x
Given DaVita’s strong cash flow and buyback program, these valuations suggest the stock is fairly priced—but not necessarily a steal.
One concern? Debt. DaVita carries ~$8.7 billion in net debt, meaning it must keep earnings stable to cover interest payments. So far, this hasn’t been an issue, but if interest rates remain high, more cash will go toward debt rather than shareholders.
Bottom Line: Buy, Hold, or Avoid?
If you’re looking for a stable, recession-proof healthcare stock with strong cash flow and a major Buffett endorsement, DaVita is a solid long-term hold.
Berkshire Hathaway’s ownership provides a strong safety net, and DaVita’s buyback strategy has been extremely shareholder-friendly.
However, if you’re chasing high growth, DaVita might not be the best bet. The GLP-1 drug risk and lack of patient volume growth could limit upside, and any major policy changes could squeeze margins.
Verdict: Moderately bullish for long-term investors who prioritize stability over high growth.
The stock will likely deliver steady returns—but don’t expect fireworks. For patient investors, DaVita is a Buffett-backed bet on reliable cash flow and capital returns.