Kidney failure is a terrible condition to suffer through. End-stage patients have two options; dialysis or a kidney transplant. Since the list of organ donors is painfully short, dialysis is often the only option. These treatments can be three to five times a week for hours each day. We're going to look at three companies who provide the equipment, drugs and facilities needed to help renal failure patients lead as normal and productive a life as possible.

Improving Mortality Rates
Fresenius Medical Care Corporation (NYSE:FMS) is one of the dominate forces in this market. The company is a world leader with about 2,000 outpatient clinics, three-quarters of which are in the Unites States. FMS owns roughly one-third of the total number of dialysis clinics in North America and it treats over 150,000 patients. The firm's products are sold to customers in about another 100 countries.

FMS is a market heavy weight with a market capitalization of almost $13.9 billion and annual sales of nearly $8.5 billion. The company's size and technological prowess give it economies of scale to not only generate a 12.3% return on equity, but more importantly give its patients a 7% to 10% lower mortality rate then they would otherwise have.

Fresenius wants to expand internationally, hoping to achieve a 35% global market share. The major downside is that the company is dependent on Medicare and Medicaid reimbursements. A recent acquisition, while making it a world-class operation also increased its debt load by $4.1 billion. Fortunately or unfortunately, this is a burgeoning market with a captive audience.

A Growing Market
Davita (NYSE:DVA) is also in the renal care business. This company provides a dialysis solution to roughly 100,000 patients suffering from chronic kidney failure through 1300 outpatient clinics. DVA also manages in-patients at about 800 hospitals.

Davita is not a small-time operation. It has almost $6 billion in market capitalization and generating just over $5.1 billion in sales. And sales are expanding at an impressive rate: DVA's revenue growth has averaged 24.2% for the past five years, 34.3% for the prior three years and last year increased a whopping 64.1%. It is no wonder Davita's return on equity is 24.7%

Davita recently acquired Gambro Healthcare which had been a customer of Fresenius Medical Corporation. How this particular maneuver will play out is unknown - stay tuned.

Do It Yourself Dialysis
NxStage Medical (Nasdaq:NXTM) has developed a home care solution for dialysis patients. The potential market for this technology is impressive. Of the 300,000 people that have to undergo treatment, 90% have to visit a clinic or hospital. This new technology is considerably less bulky and more user friendly than previous systems. This new system takes on even more significance with the backing of Davita.

NXTM is a relatively new company, it went public in late 2005, so net profits could be awhile in coming. Although at present the firm's return on equity is almost -60% you should also realize the company's revenue increased just over 247% year-over-year.

Even with Davita's backing for the next several years, NXTM is up against two industry heavyweights; Fresenius Medical Care and Baxter Labs (NYSE:BAX) the leader in peritoneal dialysis (a form of home dialysis that rivals NxStage's hemodialysis) that could develop its own technology. NxStage has this one product or system so the risk of going head to head with giant firms is a risky venture.

Not Going Away
Treating renal failure is serious business and one that is not going away. With the vanguard of the baby-boomers turning 60 this past year, this looks like a bull market. All these shares have done fairly well. NXTM and DVA have both increased by roughly 25% over the past two years, but FMS is the star. Fresenius Medical Care has risen about 70% during that same period.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  2. Home & Auto

    Understanding Rent-to-Own Contracts

    They can work for you or against you. Here's how to negotiate a fair one.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Home & Auto

    Avoiding the 5 Most Common Rent-to-Own Mistakes

    Pitfalls that a prospective tenant-buyer could encounter on the road to purchase – and how not to stumble into them.
  5. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
  6. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  7. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  8. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
RELATED TERMS
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  3. Normal Profit

    An economic condition occurring when the difference between a ...
  4. Theta

    A measure of the rate of decline in the value of an option due ...
  5. Equity

    The value of an asset less the value of all liabilities on that ...
  6. Derivative

    A security with a price that is dependent upon or derived from ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!