Is DaVita Inc. (DVA) the Cheap Value Stock to Invest in According to Warren Buffett?

Warren Buffett, the renowned investor and CEO of Berkshire Hathaway, has long been known for his value-oriented investment strategy. One of the companies that has caught his attention is DaVita Inc. (DVA), a leading provider of kidney care services. As of 2024-09-30, Berkshire Hathaway held 36.10 million shares of DaVita Inc., totaling $5.92 billion. This investment constitutes 2.22% of their stock portfolio, and Berkshire Hathaway now holds 44.01% of the outstanding DaVita Inc. stock. But is DaVita Inc. (DVA) the cheap value stock to invest in according to Warren Buffett?



To answer this question, we need to analyze DaVita's financials, valuation, and the reasons behind Warren Buffett's investment. DaVita's financial performance has been solid, with operating income reaching $1.603 billion and adjusted operating income of $1.734 billion for the year ended December 31, 2023. The company's operating cash flow was $2.059 billion and free cash flow was $1.236 billion for the same period. These figures reflect DaVita's ability to generate cash, which is crucial for funding operations, repaying debt, and returning value to shareholders through share repurchases.

DaVita's valuation ratios are generally in line with its peers in the healthcare sector, with a slightly higher PB ratio. Compared to other industries favored by Buffett, such as consumer goods and financials, DaVita's EV/EBITDA ratio is lower, suggesting that DaVita may be relatively undervalued. However, DaVita's EV/FCF ratio is higher, indicating that DaVita may be more expensive on a cash flow basis.

Warren Buffett's investment in DaVita Inc. (DVA) can be attributed to several specific aspects of the company's financials and operations. DaVita's strong financial performance, robust cash flow, disciplined capital management, resilience in the face of challenges, market share, reliance on government reimbursement programs, and growth potential make it an attractive investment for Buffett. Additionally, DaVita's strategic decisions, such as clinic closures and investments in home dialysis, align with industry trends towards more cost-effective and patient-preferred treatment modalities.

However, DaVita faces several key risks and challenges that could impact its long-term performance and Buffett's investment thesis. These include regulatory risks, competition, operational challenges, reputation risk, financial leverage, dependence on government reimbursement, technological changes, and workforce management. Investors should carefully consider these risks and challenges when evaluating DaVita Inc. (DVA) as a potential investment.

In conclusion, DaVita Inc. (DVA) may be an attractive value stock according to Warren Buffett's investment thesis, given its strong financial performance, robust cash flow, disciplined capital management, and growth potential. However, investors should be aware of the risks and challenges facing the company and make informed decisions based on their own investment goals and risk tolerance. As always, it is essential to conduct thorough research and consider seeking the advice of a financial professional before making any investment decisions.