Fresenius (NYSE:FMS) is a German medical operator of dialysis clinics all across the world. It is the largest provider in the U.S. The company has shown phenomenal growth which is great. The biggest issue, as I see it, is customer service.
There are 607.2 million shares and the company trades at a market cap of $26.2 billion. All number have been converted from Euros to dollars and can be found in the 2014 Annual Report. Earnings per share in 2014 were $3.46 and the inventory trades at a price to earnings ratio of 25. The dividend was 78¢ and the dividend yield was 0.7%. Free cash flow was $941 million and the free cash flow yield was 3.6%.
Return on equity was 11.1%. The ADR has two shares for every share that trades in Germany. Make sure you account for this when do your analysis.
Revenue in 2014 was $15.8 billion and was up 8% over 2013. 66% of sales are derived in North America, 20% Europe/Middle East/Africa, 5% Latin America, and 9% Asia. Top line growth has been awesome. Sales were $6.77 billion in 2005 and grew to $15.8 in 2014 as mentioned above. The dividend grew from 65¢ in 2010 to 78¢ in 2014. Earnings per share grew from $3.25 to $3.46 over that time frame.
Great growth and management is doing it the correct way--by not diluting share holders. Their dialysis centers are popping up all over the place and driving revenues, earnings, and dividends. It's a text book case for a stock. It doesn't seem to be slowing.
Cash was $633 million and accounts receivable $3.4 billion. Accounts payable were $714 million and debt and capital lease obligations $9 billion. There was also a accrued expense cost of $2.2 billion. S&P gives their secured debt a BBB- rating.
The dialysis business is booming. Almost every industrialized nation is aging. The number of patients Fresenius has served grew from 214,600 in 2010 to 286,300 in 2014. Treatments grew from 31.7 million to 42.7 million over that time frame.
Dialysis is used for kidney failure. The process removes waste like salt and extra water and makes sure the body has proper levels of potassium and sodium. Hemodialysis filters the blood and peritoneal dialysis uses the abdomen as a filter to clean the blood.
Fresenius has clinics all over the U.S. If a person needing dialysis travels, they can stop in at a native clinic. According to an article in the Atlantic, dialysis costs $77,000 a year. Most of the cost is picked up by Medicare or private insurance. People of all ages are eligible for Medicare if they have renal disease. One in four patients end up dying from kidney disease. The article is not flattering. It states that the two big dialysis providers, Fresenius and DaVita: do not have properly trained staff, are selling unneeded pharmaceuticals to make a profit, cost too much, have mortality rates that are too high, and are unclean. The article was published in 2010. Let's hope matters have improved.
A more recent article from the New York Times states that numerous people do not need dialysis. Because of their age and the frequency of the treatment, it can make their last few years of life miserable. The treatment (three times a week) tires most people. If a person has kidney disease and dialysis can only prolong their life by a few months, it may not be worth it.
This is a link to a great article on Seeking Alpha about DaVita (NYSE:DVA) and compares it to Fresenius. DaVita has shown great growth too and is a holding of Berkshire Hathaway (BRK.A, BRK.B). It pays no dividend and is reinvesting back into growth.
There is no doubt that dialysis, and health care in general, is a growing industry. Demographics are tilting towards the elderly all across the world and Fresenius is global. My concern is that the process of dialysis has a ways to go in customer service. I'm scared that there may be some lawsuits coming down the pike as I find way too numerous articles that are not complimentary of the process (or Fresenius). Furthermore, the stock is expensive. I would buy at the correct price but not now. I would also like Fresenius and other dialysis clinics put the patient first.
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