Weekly Equity Idea Highlight - 2018 08 08
Market expectations for PINC are currently very pessimistic. The market is expectingUAFRS-based (Uniform) ROA (ROA') to fade from 58% in 2017 to 29% in 2022, with Uniform Asset growth slowing to 9% a year going forward. The market appears to be concerned about their legacy GPO business and competition there, while the company has been focused on building other businesses around their GPO business, to defend that moat and expand to higher value add services.
Management specifically is focused on moving into higher value add areas that are in high demand, such as around value based care initiatives and clinical informatics to identify better outcomes for patients. Analysts appear to recognize that these initiatives are working. While the market has been worried about collapsing ROA', the company actually is forecast to see ROA' rise to 70%+ levels going forward, showing the acceleration this strategy is having for the company, which points to fundamental upside.
Management communication also gives reason to believe the company is seeing stronger execution than the market is recognizing. During the Q3 call management showed excitement when talking about their business strategy and customer growth, and they were confident about their success broadening their businesses to higher value-add areas to become stickier, and they were confident about seeing stronger revenue growth and customers coming to them as a platform company. These markers show a management team that is succeeding in transforming their business and seeing fundamentals accelerating.
Considering low market expectations, positive strategic tailwinds, management's intelligent strategy, and strong positive fundamental momentum for the company based on management's communication, there appears to be material near-term and long-term equity upside for PINC.
Premier is a holding company. The company, together with its subsidiaries and affiliates, is a healthcare performance improvement company. The company provides technology-enabled platform that provides supply chain services, clinical, financial, operational and value based care software-as-a-service informatics products, consulting services and performance improvement collaborative programs. The company has two business segments: Supply Chain Services, which assists its members in managing their non-labor expense and capital spend through a combination of products, services and technologies; and Performance Services, which provides information technology analytics and workflow automation and consulting services.
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