Making Money Off Medicare

Monday, 30 Jun 2008
Making Money Off Medicare
Posted By:Tom Brennan
Topics:Stock Picks | Stock Market
Sectors:Health Care | Health Care Equipment and Services
Companies:DaVita Inc. | Fresenius Medical Care Corporation

Dialysis providers are one group that Cramer said could get a boost from an updated Medicare bill.

A current version of the bill – finally – provides these dialysis companies with annual base-rate and inflation-rate payment increases. Up until now, dialysis was one of the few groups without an annual update formula. The measure will offer better visibility – and earnings – going forward.

So which company’s most likely to benefit? Well, DaVita
DAVITA INC - DVA 53.37 0.24 +0.45%
and Fresenius
FRESENIUS MEDICAL CARE AG & CO. - FMS 55.14 -0.85 -1.52%
together control 65% of the U.S. dialysis market, but Cramer leans toward the latter because of its overseas exposure. Both companies are great, and all dialysis providers will benefit from the bill, but Fresenius is clearly the best-of-breed stock here.

FMS is the only vertically integrated dialysis company in the world. It makes the tubes, supplements, drugs and machines in addition to putting them to use. This business model allows Fresenius access to countries where it doesn’t have facilities or permission to operate. (Some countries don’t allow private dialysis providers.)

The good news is that these countries are higher growth markets. The dialysis business in China is growing at 30% to 40%, and FMS has a presence there. The company’s set up shop in Europe, Latin America and the Asia Pacific region, too.

FMS trades at a premium to DaVita, but Cramer said that comes with the territory when you’re a more efficient company. Taking that premium into account, Fresenius should be worth $65 a share rather than its present price of just under $55.

And that’s not taking into account the earnings estimates Cramer thinks are too low. If those come up – and he’s betting they will – FMS stock should follow.

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the Mad Money website? madcap@cnbc.com

http://www.cnbc.com/id/25457755