DaVita

Methodology

DaVita's dialysis clinic business generates relatively stable earnings from recurring treatments, though reimbursement rate changes and patient census fluctuations create volatility. The non-discretionary nature of kidney dialysis provides demand stability. Fair value works reasonably well when accounting for low-single-digit earnings growth from clinic expansion, though regulatory and reimbursement risks add uncertainty.

Methodology

DaVita typically trades at low PEG ratios (0.8-1.5x) reflecting market concerns about Medicare reimbursement pressure and patient mix headwinds. The company's market leadership in dialysis supports operational efficiency advantages. PEG appears attractive but reflects legitimate concerns about long-term margin sustainability amid ongoing healthcare cost pressures.

Methodology

DaVita doesn't pay dividends and uses substantial free cash flow for aggressive share repurchases and debt reduction. Management prioritizes buybacks when the stock trades at perceived discounts to intrinsic value. Total return depends on earnings growth and multiple expansion as regulatory concerns ease, with capital allocation flexibility adding value.