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PINC – Although management may have concerns about segment revenue, GPO fees, and acquisitions, market expectations are too bearish, and longer-term outperformance is likely

March 4, 2021

  • Premier, Inc. (PINC:USA) currently trades well below corporate averages relative to UAFRS-based (Uniform) earnings, with an 11.0x Uniform P/E. At these levels, the market is pricing in expectations for the firm to see historically low profitability. Although management’s concerns about sustaining segment revenue growth, GPO fees, and their acquisitions suggest the potential for near-term headwinds, market expectations are too bearish, and longer-term equity outperformance is likely warranted
  • Specifically, management may lack confidence in their ability to sustain Supply Chain Services and Performance Services revenue growth, mitigate declines in adjusted net income and operational cash flow, and maintain Performance Services segment EBITDA margin. In addition, they may have concerns about further cash collection delays, the pandemic’s impact on GPO net administrative fees, and sales volatility in the PPE business. Furthermore, management may lack confidence in their ability to maintain competitive differentiation for health systems, capitalize on technology infrastructure improvement opportunities, and help members navigate pandemic-related challenges. Moreover, they may be exaggerating the revenue potential of the Yankee Alliance and the benefit of their Conductiv and Stanson acquisitions
  • Although management’s concerns about sustaining segment revenue growth, GPO fees, and their acquisitions suggest the potential for near-term headwinds, market expectations are too bearish given the firm’s strategic expansion strategy. As such, longer-term equity outperformance is likely warranted for PINC