Weekly Equity Idea Highlight - 2018 11 28
Market expectations for PINC are currently very pessimistic. The market is expectingUAFRS-based (Uniform) ROA (ROA') to fade from 78% in 2018 to 43% in 2023, with Uniform Asset growth slowing to 10% 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 into 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 Q1 call, management showed confidence across their business, including about new products and business they had acquired, their success in diversifying their revenue base, and about improved visibility for their revenue for investors. This was in line with the Q3 and Q4 calls, where management also showed confidence about innovating new offerings and generating more revenue from their customers, and around their share buyback initiatives.
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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