On Wednesday, Canaccord Genuity adjusted its stance on Premier, Inc. (NASDAQ:PINC), downgrading the healthcare improvement company's stock from Buy to Hold and reducing the price target to $21.00 from the previous $27.00.
The revision follows Premier's third-quarter fiscal year 2024 earnings, which surpassed expectations. Nevertheless, the company's reiteration of guidance and preliminary fiscal year 2025 outlook raised concerns, particularly with the anticipated reset of fee share levels.
The report by Canaccord Genuity indicates that approximately one-third of Premier's contracts are subject to repricing, with the company expecting to renew three-quarters of its group purchasing organization (GPO) book-of-business within the fourth quarter of fiscal year 2024 and throughout fiscal year 2025.
Despite Premier's belief in the distinctiveness of its technology-driven offerings, the current difficult environment for health systems may heighten the risk of pricing becoming a more significant factor in decision-making. This could lead to ongoing challenges in fee share negotiations and potential further pressure on fee share over time.
Premier's strategic review resulted in a decision to divest from the Contigo and S2S businesses, with the aim of either selling them or retaining a non-majority equity interest. However, management has indicated that completing these transactions by the end of the fiscal year in June may be unlikely.
The anticipated headwinds from the continued decline in fee share and the revenue impact from the departure of Contigo and S2S are expected to make fiscal year 2025 comparisons difficult, following an already challenging fiscal year 2024.
Canaccord Genuity's report also notes that while Premier's shares hold value at sub-6x calendar year 2024 adjusted EBITDA, and the company is actively engaging in share buybacks and dividends to return capital to shareholders, there is a lack of a catalyst to drive an expansion in the stock's multiple from current levels.
Additionally, there is uncertainty about where adjusted EBITDA will stabilize, with expectations for estimates to decline. Given the lack of clear drivers for significant upside, the firm has deemed it prudent to adopt a Hold rating on Premier's stock.
InvestingPro Insights
Amidst the shifting sentiment from Canaccord Genuity, it's worth noting some key metrics and insights from InvestingPro that could provide a broader perspective on Premier, Inc. (NASDAQ:PINC). With a PRONEWS24 coupon code, investors can delve deeper into these insights and more with a subscription to InvestingPro.
InvestingPro Data indicates that Premier has a market capitalization of $2.33 billion, and although it experienced no revenue growth in the last twelve months as of Q3 2024, it did see a quarterly revenue growth of 6.32%. The company's gross profit margin remains strong at 66.2%, underscoring its ability to maintain profitability amid market challenges. Additionally, Premier's dividend yield is notable at 4.33%, reflecting the company's commitment to returning value to shareholders, as evidenced by its four-year streak of dividend increases—an InvestingPro Tip worth considering.
Another InvestingPro Tip points to the company's stock being in oversold territory according to the Relative Strength Index (RSI), which may interest investors looking for potential entry points. The valuation implies a strong free cash flow yield, and the stock has been trading with low price volatility, which could appeal to risk-averse investors. With 11 additional tips listed on InvestingPro, there are ample data points for investors to consider when evaluating Premier's stock performance and potential investment opportunities.
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