The healthcare industry is expanding as demand for medical devices and supplies grows, driven by an aging population and advancements in preventive care. Premier (PINC), the largest public group purchasing organization in the U.S., helps healthcare providers streamline procurement and improve efficiency through its supply chain services and SaaS-based performance solutions. In today’s FA Alpha Daily, we explore Premier’s strategic asset divestitures, aiming to capitalize on the healthcare sector’s recovery, despite market skepticism.
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The healthcare industry is growing as an aging population and increased focus on preventive care drive demand for medical equipment and supplies.
The global medical devices and consumables market is expected to grow from $540 billion in 2023 to $800 billion by 2030, with a compound annual growth rate of 5.9%.
Regular checkups, disease prevention, and early screenings are now priorities, leading to higher demand for advanced medical devices and consumables.
Innovations in materials and technology are making these products more efficient and accessible, helping healthcare providers deliver better care.
This growing need for medical equipment will be beneficial for the procurement and distribution networks in meeting these demands and supporting the healthcare sector’s recovery.
Premier (PINC) operates as the largest public group purchasing organization in the U.S., connecting hospitals and healthcare facilities to streamline procurement and reduce costs through aggregated demand.
The company also extends its capabilities beyond procurement through its performance services, which focuses on advanced solutions such as clinical intelligence, value-based care, and margin improvement.
Additionally, Premier leverages its extensive data analytics and SaaS products to provide actionable insights for healthcare providers, helping them improve operational efficiency and patient outcomes.
Its SaaS offerings, which include subscription-based platforms, are designed to optimize supply chain management, enhance clinical decision-making, and support cost-effective care delivery.
This model enables the company’s customers to purchase essential equipment and inventory more efficiently.
However, Premier has faced significant challenges in recent years related to its debt burden and reduced purchasing activity during and after the pandemic.
Over the past few years, the company’s large debt load has been a primary concern for investors.
Premier addressed this issue by divesting non-core assets, allowing it to reduce liabilities and strengthen its financial position.
With a cleaner credit profile and manageable leverage, Premier now has the flexibility to pursue growth opportunities, including acquisitions, without undue financial strain.
Despite these positive developments, the market continues to price the company as though it remains in the challenging conditions of the past few years.
We can see this through our Embedded Expectations Analysis (“EEA”) framework.
The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.
In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.
At the current stock price, the market predicts that the company’s Uniform ROA will fall to around 6%.
The healthcare sector has experienced a resurgence in equipment and inventory purchasing after a prolonged period of reduced activity during the pandemic.
Providers are replenishing inventories and making necessary capital investments, creating a favorable environment for Premier’s supply chain services.
With its largest obstacle, debt, largely behind it, the company’s strong position in supply chain services and its growing performance services suggest it is well-prepared to benefit from the healthcare industry’s recovery.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
This analysis of Premier (PINC)’s credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.