2023-03-09 10:59:22 ET
Summary
- The investment thesis is definitely there for Premier but the valuation seems a little too high right now until the company further proves itself.
- The earnings report was mixed with the top line decreasing and the bottom line increasing.
- The lower valuation seems to offer little risk for a long-term position, but steady growth needs to be visible until a buy rating can be given.
Investment Summary
From a valuation perspective, Premier Inc (PINC) appears to be much lower compared to its peers in the industry, but this could be justified by the relatively new company it is and its small market cap compared to peers.
Overall, Premier Inc presents a compelling investment case due to its leadership position in the healthcare industry, strong financials, and diverse portfolio of services. Investors should closely monitor market trends and potential risks, but based on its growth potential and solid fundamentals, Premier Inc could be a worthwhile addition to a long-term investment portfolio.
Company Overview
Premier Inc. is a leading healthcare improvement company that provides a range of services and solutions to hospitals, health systems, and other healthcare providers in the United States. The company was founded in 1996 and is headquartered in Charlotte, North Carolina.
Premier Inc operates through several segments, including Supply Chain Services, Performance Services, and Technology & Analytics. The Supply Chain Services segment provides group purchasing and supply chain management services to healthcare providers. The Performance Services segment offers to consult analytics and other performance improvement services. The Technology & Analytics segment provides data analytics and technology solutions that help healthcare providers to improve their operations and patient outcomes.
Revenue Breakdown
Premier Inc. released its latest earnings report for the three and six months that ended December 31, 2022. The report shows a decline in net revenue for both periods compared to the previous year, with a 5% decrease in net revenue for the quarter and a 10% decrease for the six-month period. Despite the decline in revenue, the company was able to increase net income by 15% for the quarter, with net income totaling $64.4 million. Diluted earnings per share attributable to stockholders were reported at $0.54, down 13% from the previous year.
Income Statement (Earnings Report Q2)
Supply Chain Services, which is Premier's largest segment, saw a 13% decrease in net revenue for the quarter, while Performance Services showed a 15% increase in net revenue. The decline in revenue for the quarter was primarily attributed to a 40% decrease in product revenue, while administrative fees, software licenses, other services, and support saw an increase.
Premier Inc.'s earnings report highlights the company's ability to increase net income despite the decrease in revenue for the quarter. It also shows the impact of the COVID-19 pandemic on the company's revenue, particularly in its product segment. Investors should keep an eye on the company's ability to grow revenue in the coming quarters and how it plans to navigate the ongoing pandemic.
Market Tailwinds
Premier Inc operates in the healthcare industry, providing solutions to improve patient outcomes and reduce costs for healthcare providers. The healthcare industry is a massive and growing market, with the global healthcare market expected to reach $11.9 trillion by 2022, according to research by Zion Market Research.
There are several tailwinds for the healthcare industry, including the aging population, increased healthcare spending, and advancements in medical technology. The aging population is a significant driver of demand for healthcare services, as older individuals typically require more medical attention. Additionally, healthcare spending has been increasing globally, driven by rising healthcare costs and growing demand for healthcare services.
The healthcare industry is expected to experience strong growth in the coming years, with a CAGR of 6.2% from 2021 to 2028, according to a report by Grand View Research . This growth is expected to be driven by increasing demand for healthcare services and rising healthcare spending.
Premier Inc's financial performance was largely in line with expectations, with the company continuing to advance its business strategy, according to Michael J. Alkire , Premier's president, and CEO. The company's Supply Chain Services segment saw growth in its non-acute group purchasing business, which drove overall group purchasing growth. Additionally, Premier's Performance Services segment produced strong revenue growth driven by the execution of enterprise license agreements and growth in consulting services and adjacent markets businesses.
Like many others in the industry, Premier Inc is operating in a challenging and uncertain macro environment. The company is seeing lower levels of healthcare services utilization within its provider member base than anticipated, which impacts the volume of supplies they purchase. Additionally, due to market dynamics, Remitra™ is ramping slower than originally contemplated in the company's fiscal 2023 guidance.
The healthcare industry is a massive and growing market, with several tailwinds driving demand and expected CAGR. Premier Inc is well-positioned to take advantage of these trends, with a strong performance in its Supply Chain Services and Performance Services segments. However, the company also faces challenges in the current macro environment, which may impact its growth potential. Investors should monitor Premier's performance in the coming quarters to determine if the company is a good investment opportunity.
The Company's Profitability
Premier's balance sheet as of December 31, 2022, shows a total of $3.5 billion in assets, with the majority of the assets consisting of goodwill, intangible assets, and deferred income tax assets. The company's cash and cash equivalents increased to $94.6 million from $86.1 million in the previous quarter, while accounts receivable and contract assets also increased.
In terms of liabilities, Premier has a total of $1.2 billion in current liabilities, consisting primarily of revenue share obligations, notes payable, and accrued compensation and benefits. The company's long-term debt decreased from $2.3 million to just $1,008, which indicates a strong ability to repay debt.
Premier's profitability has been consistent over the years, with a gross profit margin of 51.6% for the fiscal year 2021. The company's net income has also been steady, with a net profit margin of 6.3%.
Company Guidance (Earnings Report Q2)
Compared to its peers in the healthcare services industry, Premier's profitability is on par with the industry average. However, the company's balance sheet is stronger than many of its competitors, with a lower debt-to-equity ratio, indicating a lower reliance on debt financing. This positions the company well to weather any potential economic downturns.
Despite its strong financial position, Premier is operating in a challenging and uncertain macro environment, as noted by its CEO. The company's financial performance is impacted by the lower levels of healthcare services utilization within its provider member base, which impacts the volume of supplies they purchase. This could potentially impact Premier's revenue growth in the near term.
Premier's balance sheet reflects a strong financial position with lower reliance on debt financing. The company's profitability is in line with industry averages, indicating a stable financial performance. However, given the challenges in the macro environment, Premier will need to continue to navigate through these uncertain times and adapt its business strategy to drive sustainable growth.
Risks
Like any business, Premier Inc. faces a number of risks that could negatively impact its financial performance and shareholder value. One major risk is the highly competitive and rapidly changing nature of the healthcare industry. As a provider of supply chain and performance services to healthcare organizations, Premier operates in a space where new technologies, regulations, and competitive pressures can emerge quickly and disrupt the market. If the company is unable to keep up with these changes or fails to anticipate shifts in the market, it could suffer declines in revenue, market share, and profitability.
Another risk facing Premier is the ongoing macroeconomic uncertainty and market volatility that has been brought on by the COVID-19 pandemic. While the pandemic has created an increased demand for certain healthcare products and services, it has also resulted in reduced utilization of healthcare services overall. This lower utilization could impact the volume of supplies Premier's client purchase, as noted by the company's CEO in the Q2 earnings release. Furthermore, the pandemic has resulted in heightened supply chain disruptions and costs that could impact Premier's margins.
Valuation & Conclusion
Premier's P/E ratio is 12.8, P/S ratio is 0.5, P/B ratio is 3.0, and EV/EBITDA ratio is 7.5. When compared to peers in the industry, these metrics suggest that Premier is trading at a discount to the industry average. For instance, the P/E ratio for the healthcare information services industry is around 23.4, which is significantly higher than Premier's P/E ratio of 12.8.
However, it's important to note that valuing a company based solely on financial ratios can be misleading, as there may be other factors that are not reflected in the numbers. For instance, the risks and uncertainties facing the healthcare industry, as well as any operational challenges faced by Premier, could have an impact on the company's valuation.
Despite the potential risks, Premier's solid financial performance and diverse range of products and services could make it an attractive investment option. The company has a strong balance sheet with a healthy cash balance and manageable debt levels. Additionally, Premier's non-acute group purchasing business and Performance Services segment have shown strong revenue growth, which bodes well for the company's future.
In conclusion, the valuation metrics suggest that Premier is undervalued relative to its peers in the healthcare information services industry. However, investors should also consider the risks facing the industry, as well as any operational challenges that Premier may face in the future. Overall, the diverse range of products and services offered by Premier, coupled with its solid financial performance, makes it an attractive investment option, and therefore it could be a good buy for long-term investors who are willing to take on some risk in the healthcare sector.
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Premier, Inc. Looks Very Interesting