Evercore ISI Downgrades Premier, Inc. (PINC) to Hold
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Evercore ISI downgraded Premier, Inc. (NASDAQ: PINC) from Buy to Hold with a price target of $34.00 (from $36.50).
Analyst Ross Muken commented, "Post assuming coverage of Premier we have witnessed mixed operating performance, with challenges in the PS segment (core growth has decelerated from HSD to flattish, while EBITDA margins have declined >500bp) overshadowing strong growth across Supply Chain (HSD net admin fee and DD product growth). Unfortunately, despite steps taken by management to reinvigorate growth and margins in the business, we do not foresee a quick fix and contend that purchasing uncertainty may persist throughout FY17 as hospitals are challenged by a myriad of payment reforms (note - shift to value based care should ultimately be a major tailwind). Furthermore, we struggle to determine the proper relative valuation for an asset that has superior top-line growth (even on an organic basis) but has negative mix shift pressuring margins, while the balance sheet remains materially under-leveraged limiting EPS growth. When coupled with the complex ownership structure and flattish FCF generation we think it will take some time for PINC to regain its multiple footing and see meaningful relative re-expansion. We would also note that while optically some multiples look relatively inexpensive, on a DCF basis our new PT of $34 implies a perpetuity growth rate >3% which we view as fair in relation to our broad coverage universe. Thus given these factors likely limiting returns near-term, we downgrade shares from Buy to Hold and recommend waiting for either a sustained turnaround in PS core or a notable utilization of the company’s very robust balance sheet."
The firm lowered FY 2017 EPS estimates from $1.80 to $1.75, FY 2018 EPS from $2.00 to $1.95 and maintained FY 2019 EPS at $2.15.
Shares of Premier, Inc. closed at $33.74 yesterday.
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