March 26, 2009 - DaVita Inc. (DVA-NYSE) provides dialysis services for patients suffering from chronic kidney failure, which is known as end stage renal disease (ESRD) in the United States. The company operates kidney dialysis centers, and provides related medical services primarily in dialysis centers and in contracted hospitals.

As of December 31, 2008, it operated or provided administrative services to 1,449 outpatient dialysis centers located in 43 states and the District of Columbia, serving approximately 112,000 patients. The company also provided acute inpatient dialysis services in approximately 700 hospitals and related laboratory services. DaVita Inc. was founded in1994 and is headquartered in El Segundo, California.

Looking for stock that increases profits every year? Your search has ended. Even in these difficult economic times, DVA delivers good profitability. Since 2000, earnings per share (eps) have risen, going from 13 cents to $3.53 last year. For 2009, analysts see $3.80, then $4.16 in 2010. The first quarter's eps news comes out on April 28. Expect 91 cents a share, well ahead of 80 cents in the same quarter last year. For the second quarter analysts expect 94 cents eps, above the 90 cents of the same period last year.

One of the reasons for the stock's resilience (and continued better earnings) is the non-discretionary nature of its services. If you need kidney dialysis, you don't have a choice as to whether you get it. You get it. Another positive for the company is that Medicare (59% of 2008 revenues) covers most of the bills, making collection easier (4% of sales are from Medicaid, 37% from all other sources). The average dialysis/treatment costs were $334 last year. The reimbursement policy for kidney dialysis for 2009 and 2010 has already passed with a market basket increase of 1% for each year. That makes for stable earnings and predictability much easier for investors, traits hard to find in other stocks in the current market.

Patient treatment continues to grow, a little above 4% last year. 26 new facilities opened in the last quarter of 2008 and 56 additional offices were built and wait for certification. Revenues were $5.66 billion last year, up from $4.88 in 2006. Analysts predict $6 billion this year and $6.34 billion next year.

There's strong cash flow here. The company bought back stock with some of it, but there's enough left over for growth. Maybe an acquisition is planned for the extra cash though the company carries a heavy debt load (72% of capital). Still, management sees prices coming down for companies in its sector and thinks the opportunities for buying are priced at very attractive levels.

New internal growth comes from DaVita Rx and Lifeline vascular access centers. Both are seeing increased usage but still losing money. Analysts see them breaking even by the end of 2009.

More numbers: Market cap is $4.57 billion. Forward P/E is 10.6. Price to Book is 2.35. Operating margin was 15.34% for the last 12 months; profit margin was 6.61%. Total cash is $440.4 million for $4.30 a share. Total debt is $3.7 billion. Current ratio is 1.83. Book value per share is $18.82.
Beta is .41. 52-week high was $60.20, low was $40.96. There are 103.9 million shares outstanding. Institutions own 96.4% of the float. There is no dividend.

With the stock within 10% of its 52-week low, it may be well worth investors' time to spend some of it on DVA. Growth is good in both sales and earnings. EPS is predictable with possible upside surprises from a new acquisition or two. Maybe some of the cash flow will go to a dividend. Valuations are reasonable. It has most of the attributes most investors want. Except for all that debt. But then there's the strong cash flow. And so the debate continues.

- Company Web site: www.davita.com

- Ted Allrich