On Wednesday, Canaccord Genuity adjusted its price target for Premier, Inc. (NASDAQ:PINC), a healthcare improvement company, reducing it to $19.00 from the previous $20.00, while keeping a Hold rating on the stock. The adjustment follows Premier's recent announcements regarding its financial strategy and divestiture plans.
The firm's new price target is based on a 6.4 times multiple of the company's projected core adjusted EBITDA for calendar year 2025, reflecting a consistent 50% discount compared to a peer group of provider-focused technology companies. These peers are currently trading at approximately 12.8 times their expected 2025 adjusted EBITDA, excluding the highest and lowest values.
Canaccord's revised valuation incorporates Premier's latest financial moves, including the divestiture of certain assets and investments in others. The firm's estimates are unchanged and do not include contributions from the divested S2S or the planned sale of Contigo Health. However, they have updated their target enterprise value assumptions following the announcement made earlier in the day.
The updated financial model now includes around $70 million for an additional 20% direct interest in Prestige, resulting in a total investment in unconsolidated affiliates of approximately $298.6 million. This figure includes the $228.6 million balance reported at the end of the fourth fiscal quarter of 2024.
The firm also continues to anticipate $40 million in future proceeds from the planned divestiture of Contigo Health and has accounted for the final $42.4 million OMNIA proceeds payment, which was received in the first quarter and disclosed during the fourth-quarter call in August, along with the $125.1 million in cash reported at the close of the fourth quarter in June.
Canaccord notes that while there may be potential value in Premier's shares as the company concentrates on its core functions, they remain cautious. The firm's stance is influenced by the "noise" of negative growth optics due to both realized and planned divestitures and the challenges of rising fee share in Premier's group purchasing organization (GPO) business.
In other recent news, Premier Inc. has announced a strategic expansion of its partnership with Prestige Ameritech, a leading U.S. personal protective equipment manufacturer. The deal involves Premier divesting its holdings in S2S Global, its direct sourcing subsidiary, in exchange for a 20 percent minority stake in Prestige, raising Premier's total ownership to approximately 24.2 percent.
In addition, Premier has reported strong fiscal fourth-quarter results for 2024, 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 several analyst firms to revise their outlook. Benchmark downgraded Premier from Buy to Hold, while Piper Sandler, Canaccord Genuity, and Baird all reduced their price targets for the company.
Premier has also announced the appointment of a new CFO, Glenn Coleman, at the end of 2024, and plans to divest non-core assets. Despite challenges, Premier maintains a robust cash position, with $125.1 million in cash and equivalents. Looking ahead, the company 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 recent financial strategies and divestiture plans, as discussed in the article, align with several key insights from InvestingPro. The company's market cap stands at $1.94 billion, with a P/E ratio of 18.67, reflecting its current valuation in light of recent developments.
InvestingPro Tips highlight that Premier has been aggressively buying back shares, which could be seen as a vote of confidence from management in the company's future prospects. This aligns with the company's focus on core functions mentioned in the article. Additionally, Premier has raised its dividend for 4 consecutive years, demonstrating a commitment to shareholder returns despite the challenges noted by Canaccord Genuity.
The company's valuation implies a strong free cash flow yield, which could be attractive to investors looking for value in the healthcare improvement sector. This metric becomes particularly relevant as Premier navigates its divestiture plans and focuses on core operations.
It's worth noting that InvestingPro offers 8 additional tips for Premier, Inc., providing a more comprehensive analysis for investors interested in delving deeper into the company's prospects.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.