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Morningstar | DaVita Announces Changing of the Guard: Thiry to Leave CEO Post After Nearly 20 Years

On April 29, narrow-moat DaVita announced the departure of CEO Kent Thiry effective June 1, 2019, although he will remain on the board as executive chairman until June 2020. The board has appointed Javier Rodriguez, the current CEO of DaVita's kidney care operations, to lead the firm. Rodriguez is an obvious successor, in our view, with over 20 years' experience at DaVita in various leadership positions including heading up the company's core dialysis business since 2014. We don't expect this development to affect our $79 per share fair value estimate--the stock remains one of our Best Ideas with shares currently trading in 5-star territory.

While the timing of the transition comes as a surprise, we think it will end up being relatively seamless for the business. More importantly, we think investors are trying to parse the timing of the announcement as we await the close of the firm's sale of DaVita Medical Group to UnitedHealth. We're of the view that this announcement suggests the deal is more likely to close than not, signaling the firm's intent to refocus on its core dialysis business after a long and unsuccessful foray into broader healthcare management. We think it's unlikely that Thiry would set up his longtime deputy for immediate failure in the event the transaction was not on a path to close in the coming weeks. Additionally, according to reporting done by The Denver Post both an improving Medicare reimbursement environment and the fact the DMG transaction is "nearly done" were reasons cited to support the timing of the announcement. Further, the Post suggests the board had been assessing succession options over the last several years, although this hasn't been a topic frequently discussed with investors.

DaVita will remain in capable hands under the leadership of Rodriguez, but we'd be remiss not to reflect on Thiry's success. Under his purview, DaVita amassed the scale required to dig an economic moat in a uniquely difficult industry, while maintaining a focus on both patients and shareholders. By our math, Thiry grew per-share value at DaVita by nearly 19% annually since his appointment to the CEO position in October 1999.

For a deeper dive into the dialysis industry and support for our bullish stance on DaVita, please see our reports, "Dialysis Remains Moatworthy Despite Regulatory Concerns" and "Attractive Home Dialysis Economics Support Providers' Moats."