Premier shares price target raised to $19 from $18 by BofA

On Tuesday, BofA Securities adjusted its price target for Premier, Inc. (NASDAQ:PINC), increasing it to $19.00 from the previous $18.00, while maintaining an Underperform rating on the stock. The adjustment follows Premier's strong start to fiscal year 2025, where the company's revenue, EBITDA, and EPS outperformed the estimates projected by Wall Street analysts.

The healthcare improvement company is experiencing benefits from increased utilization in the end-market and a higher penetration of existing member spend. These factors, along with new partnerships like the one with AllSpire Health announced last quarter, are expected to contribute positively to the company's gross administrative fee growth in FY25.

Despite the positive outlook on revenue, Premier continues to face challenges with net administrative fee pressure. The blended fee share rates for the first quarter of FY25 were reported in the low 60s percentage range, a slight increase from the mid-50s percentage in FY24. The future of these rates remains uncertain, with potential for them to land in the mid-to-high 60s percentage range in FY26 and FY27, or possibly higher if competitive dynamics change.

BofA Securities notes that while EBITDA might see limited growth due to the net administrative fee headwinds, Premier's share repurchases should support EPS growth. The company's strong cash flow is expected to provide various options for capital allocation activities that could enhance its financial model in the upcoming years.

The firm acknowledges Premier's high-margin business model, its scale, and market positioning as considerable strengths. However, concerns about the risks associated with deleverage from net administrative fee pressures and evolving competitive dynamics underpin the decision to reiterate the Underperform rating with a price objective of $19, based on a 7.0x multiple of CY25 EBITDA.

In other recent news, Premier Inc. has unveiled its 2024 Sustainability Report, emphasizing its commitment to sustainable business practices. The report details the company's strategies and performance in various sustainability aspects, including environmental, social, and governance initiatives. Premier Inc. also reported strong fiscal fourth-quarter 2024 results, with total net revenue of $350.3 million and adjusted EBITDA of $118.7 million.

However, the company's financial outlook for 2025 has led to valuation adjustments from Canaccord Genuity and Piper Sandler, who lowered their price targets for the company. Benchmark also downgraded Premier's stock from Buy to Hold.

In a strategic move, Premier has divested non-core assets, including the sale of its direct sourcing subsidiary, S2S Global. Instead, Premier has increased its stake in Prestige Ameritech, a U.S. personal protective equipment manufacturer, to approximately 24.2 percent.

Despite facing challenges due to increased fee share headwinds and the renewal process of its Group Purchasing Organization, Premier maintains a robust cash position, with $125.1 million in cash and equivalents. Lastly, Premier anticipates a low to mid 40s EBITDA margin for supply chain services and mid 20s for performance services in fiscal 2025.

InvestingPro Insights

Premier, Inc.'s (NASDAQ:PINC) recent performance and future outlook can be further illuminated by insights from InvestingPro. The company's stock is currently trading near its 52-week high, with a price at 99.44% of its peak, reflecting the market's positive response to its recent financial results.

InvestingPro data shows that Premier has a market capitalization of $2.2 billion and a P/E ratio of 21.75. However, the adjusted P/E ratio for the last twelve months is significantly lower at 7.77, suggesting that the stock might be undervalued when considering its earnings potential.

Two relevant InvestingPro Tips highlight Premier's financial strategy and market position. Firstly, management has been aggressively buying back shares, which aligns with BofA Securities' observation about share repurchases supporting EPS growth. Secondly, Premier has raised its dividend for 4 consecutive years, indicating a commitment to returning value to shareholders despite the challenges mentioned in the article.

These insights complement the article's discussion on Premier's financial model and capital allocation activities. For investors seeking a deeper understanding of Premier's financial health and market position, InvestingPro offers 8 additional tips that could provide valuable context for investment decisions.

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