3 Beyond-the-Numbers Takeaways

If you only looked at the numbers with no context, you might be disappointed with the second-quarter earnings for dialysis services provider DaVita (NYSE: DVA  ) . The company announced earnings per share of $0.99, down from $1.03 in the same quarter last year.

As Foolish investors know, though, there is more to analyzing a company and its stock than just looking at the numbers. Here are three takeaways from DaVita's latest earnings results that go beyond the numbers.

1. There can be gaps when depending only on GAAP.
Any financial website you look to for DaVita's year-on-year earnings results will correctly show a 4.7% decrease. The company did indeed experience a decline in earnings following Generally Accepted Accounting Principles (GAAP). What GAAP doesn't address, however, is the "why" behind the numbers.

In DaVita's case, the lower earnings were due to a one-time event. The company accrued $78 million in connection with a settlement of litigation related to alleged false Epogen claims. In his comments during the earnings conference call, DaVita CEO Kent Thiry stated that the company didn't believe that any actual wrongdoing was committed but that "sometimes agreements like this are in your best interest."

DaVita's earnings excluding one-time events were nearly 25% higher than in the same quarter last year.

2. Growing pains can accompany growth.
DaVita received $4 million in revenue during the quarter from its international services. However, the company lost $12 million from those operations and expects to lose over $30 million for the full year. These losses primarily reflect higher legal and professional fee expenses related to its international expansion.

The company is new to the international market. Its first real efforts began only in the fourth quarter of 2011, starting with 11 dialysis centers in three countries -- Germany, India, and Singapore. DaVita's international presence now includes Malaysia and Saudi Arabia. It plans to begin operating in China later this year.

According to U.S. Renal Data Systems, the prevalence of end stage renal disease (ESRD), which requires regular dialysis, is growing annually in virtually every country reporting data. While DaVita could encounter more losses with its international efforts in the near-term, the opportunities look promising over the long run.

3. The future looks good.
DaVita raised the low end of its operating income guidance for 2012 by $45 million. The company sees good days ahead, and they're not alone. Warren Buffett's Berkshire Hathaway (NYSE: BRK-B  ) bought 6 million shares of DaVita earlier this year. That stake places Berkshire at the top of the list of institutional holders in the stock.

The renal dialysis market isn't a bad one to be in. DaVita's primary competitor, Fresenius Medical Care (NYSE: FMS  ) , recently narrowly missed analyst earnings estimates. However, the company is experiencing solid revenue growth in its dialysis services.

Shares of Amgen (Nasdaq: AMGN  ) shot up over 60% over the last 12 months. Amgen manufacturers Epogen, a drug used to treat anemia in patients on dialysis. Affymax (Nasdaq: AFFY  ) is a newer player in the dialysis market. Its competing Omontys anemia treatment for dialysis patients was approved by the FDA earlier this year. No surprise, then, that Affymax is up nearly 150% in 2012.

DaVita has also expanded beyond renal dialysis. The company announced a merger with Healthcare Partners in May. Healthcare Partners is the largest operator of medical groups and physician networks in the U.S.

Beyond the numbers
DaVita presents a good example of why investors need to research stocks beyond the headline numbers. Warren Buffet and his associates at Berkshire Hathaway certainly do. Their decision to buy a large stake in DaVita gives support to the idea that the company has a solid business model with strong management.

The stock doesn't appear to be a big value play, however. It trades at a forward P/E of 14.1, right in the middle of its five-year range.

Looking beyond the numbers, DaVita has steady growth in its core business, strong international growth prospects and new revenue sources with the addition of Healthcare Partners. Overall, DaVita looks like a pretty good bet for long-term investors.

If you're interested in other stocks that Warren Buffett is buying, or would buy if he could, check out The Motley Fool's special report titled, "The Stocks Only the Smartest Investors Are Buying." Get your free copy now!

Fool contributor Keith Speights owns no shares in the stocks mentioned above. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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