November 28, 2018

PINC – Management is confident about Stanson Health, fees, and revenue recognition, which coupled with overly bearish market expectations, suggests that upside remains warranted

  • Premier, Inc. (PINC:USA)currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 13.5x Uniform P/E. At these levels, the market is pricing in expectations for the firm to see historically low profitability, but management is confident about Stanson, fees, and revenues. As such, longer-term equity upside remains warranted
  • Specifically, management is confident that their acquisition of Stanson Health will improve their intelligent clinical decision support technology, and that 25% to 30% of their net administrative fee revenue comes from nonacute-related facilities. Additionally, they are confident that their new revenue recognition standard resulted in the attribution of some revenue to prior periods, and that year-over-year performance comparisons will continue to be impacted through fiscal 2019 as a result. They are also confident that one of the benefits of the new revenue recognition standard is that periodic variability shouldn’t exist going forward, resulting in much more normalized growth
  • Given management’s positive sentiment, market expectations for Uniform ROA compression appear far too bearish, and as such, multiple expansion and equity upside continue to be warranted
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