Medline’s $25 bln supply chain scale wins Jefferies “buy” in coverage debut

Investing.com -- Jefferies initiated coverage of Medline Inc. with a “Buy” rating in a note dated Monday, citing the company’s combined supply chain and private-label product model and its scale in medical-surgical distribution.

The brokerage set a price target of $50, based on discounted cash flow analysis and a 19x to 20x multiple of projected 2027 EBITDA.

Jefferies said the medical-surgical manufacturer and distributor operates through two segments, Medline Brand and Supply Chain Solutions, which together generated about $25.5 billion in revenue in 2024.

Medline Brand posted $12.5 billion in net sales with an adjusted EBITDA margin of 26.1%, while Supply Chain Solutions recorded about $13 billion in net sales with a 5% adjusted EBITDA margin.

The company distributes about 145,000 third-party products and manufactures about 190,000 Medline Brand products, supported by 33 manufacturing facilities and 69 distribution centers, according to the report.

Jefferies said Medline’s Prime Vendor model is central to the coverage initiation. The brokerage noted that Medline had more than 1,300 Prime Vendor relationships as of fiscal 2024, representing about $16 billion in net sales, with no single customer accounting for more than 3% of revenue.

Under these agreements, hospitals and health systems commit to sourcing most medical-surgical supplies through Medline.

Jefferies said that Medline Brand products typically represent about 13% of net sales at the start of a Prime Vendor relationship, rising to about 24% after one year, 32% by year five and about 42% by year 10, based on historical cohort data from 2014 to 2023.

The brokerage said Medline operates in an estimated $375 billion global total addressable market, including about $175 billion in the United States and about $200 billion outside the U.S.

Jefferies cited company data showing that Medline generated about $13 billion in fiscal 2024 revenue within a roughly $75 billion serviceable addressable market across front-line care, surgical solutions, and laboratory and diagnostics categories.

International revenue accounted for about 7% of total sales, or roughly $1.8 billion in 2024, according to the report.

The brokerage forecast EBITDA of $3.42 billion in 2025, $3.52 billion in 2026 and $3.82 billion in 2027. Adjusted earnings per share were projected at $1.19 in 2025, $1.49 in 2026 and $1.65 in 2027.

The discounted cash flow analysis used an 8% discount rate, a 3% terminal growth rate and a 12% terminal operating margin, resulting in an implied equity value of about $52 per share, with the $50 target reflecting a blended valuation approach.

The analysts cited risks tied to hospital admissions and utilization, possible Medicaid funding reductions, competition from other distributors and manufacturers, and potential tariffs affecting medical technology products. It also said Medline’s results could be affected by changes in overall healthcare spending.

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