Market status at 10:24PM ET: SPY down -0.04% XLV down -1.05% XBI down -0.46%
Month off for the holidays. I initiated a short on DaVita via $100 put expiry 2/18. I expect it to expire worthless since the stock continues to climb on news of their $2B buyback program. DVA has increasing leverage risk (~6:1 D/E) and 2.5% increase in gross profit in 2020 and 1.81% gross profit for the first 3 quarters of 2021. My theory is that they’re underestimating possible deaths from COVID-19 since their population is most at-risk for serious complications from COVID. Their 10-Q addresses this:
[The Delta variant] surge has led to an increase in incremental mortality on an absolute basis in the third quarter compared to the second quarter of 2021, though COVID infections have declined since the end of the third quarter. Over the longer term, we believe that changes in mortality in both the CKD and ESRD populations due to COVID-19 will depend primarily on the infection rate, case fatality rate, the age and health status of affected patients, and access to and continued efficacy of vaccinations or other treatments or therapies, as well as willingness to be vaccinated.DaVita Inc. Form 10-Q. Securities and Exchange Commission. https://www.sec.gov/ix?doc=/Archives/edgar/data/927066/000092706621000166/dva-20210930.htm
I am probably wrong on the timing and magnitude of DaVita’s next earnings report and more importantly, guidance for 2022. I’m also swimming against the current of a large buyback program. However, I believe DaVita is vulnerable to its debt load, increasing operating costs in terms of its skilled laborers (nurses, doctors and IV techs), and losing patients who are most vulnerable to COVID-19, particularly the omicron variant which is eclipsing all other variant surges in all parts of the country.