Premier (PINC)

Healthcare tech company Premier (NASDAQ:PINC) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 23.7% year on year to $261.4 million. On the other hand, the company’s full-year revenue guidance of $975 million at the midpoint came in 1.2% below analysts’ estimates. Its non-GAAP profit of $0.44 per share was 45% above analysts’ consensus estimates.

Company Overview

Operating one of the largest healthcare group purchasing organizations in the United States with over 4,350 hospital members, Premier (NASDAQ:PINC) is a technology-driven healthcare improvement company that helps hospitals, health systems, and other providers reduce costs and improve clinical outcomes.

The healthcare technology industry focuses on delivering software, data analytics, and workflow solutions to hospitals, clinics, and other care facilities. These companies enable providers to streamline operations, optimize patient outcomes, and transition to value-based care models. They boast subscription-based revenues or long-term contracts, providing financial stability and growth potential. However, they face challenges such as lengthy sales cycles, significant upfront investment in technology development, and reliance on providers’ adoption of new tools, which can be hindered by budget constraints or resistance to change. Over the next few years, the sector is poised for growth as providers increasingly prioritize digital transformation and efficiency in response to rising healthcare costs and patient demand for seamless care. Tailwinds include the growing adoption of AI-driven tools for patient engagement and operational improvements, government incentives for digitization, and the expansion of telehealth and remote patient monitoring. However, headwinds such as tightening hospital budgets, cybersecurity threats, and the fragmented nature of healthcare systems could slow adoption.

Premier's group purchasing business competes with other large GPOs such as HealthTrust Purchasing Group (owned by HCA Holdings), Vizient, and Managed Health Care Associates. In Performance Services, Premier competes with healthcare IT providers like Epic Systems, Health Catalyst, and Oracle, as well as consulting firms such as Optum (UnitedHealth Group), Deloitte, and Guidehouse.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.1 billion in revenue over the past 12 months, Premier is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Premier’s demand was weak over the last five years as its sales fell at a 2.9% annual rate. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Premier’s recent performance shows its demand remained suppressed as its revenue has declined by 9.3% annually over the last two years.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Supply Chain and Performance Service, which are 61.6% and 38.4% of revenue. Over the last two years, Premier’s Supply Chain revenue averaged 12.2% year-on-year declines while its Performance Service revenue averaged 2% declines.

This quarter, Premier’s revenue fell by 23.7% year on year to $261.4 million but beat Wall Street’s estimates by 7.4%.

Looking ahead, sell-side analysts expect revenue to decline by 10.1% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not catalyze better top-line performance yet.

Premier has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 13.6%, higher than the broader healthcare sector.

Analyzing the trend in its profitability, Premier’s operating margin decreased by 11.2 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 14.3 percentage points on a two-year basis. We’re disappointed in these results because it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Premier generated an operating profit margin of 12.9%, up 35.9 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Premier’s EPS grew at an astounding 34.5% compounded annual growth rate over the last five years, higher than its 2.9% annualized revenue declines. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into Premier’s earnings quality to better understand the drivers of its performance. A five-year view shows that Premier has repurchased its stock, shrinking its share count by 28.4%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, Premier reported EPS at $0.44, down from $0.57 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Premier’s full-year EPS of $1.72 to shrink by 21.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Premier has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 23% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Premier’s margin expanded by 18.7 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Premier’s free cash flow clocked in at $107.4 million in Q1, equivalent to a 41.1% margin. This result was good as its margin was 1.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Premier historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.5%, lower than the typical cost of capital (how much it costs to raise money) for healthcare companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Premier’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Premier reported $71.33 million of cash and $863.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $303 million of EBITDA over the last 12 months, we view Premier’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $17.84 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Premier blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year revenue guidance slightly missed. Zooming out, we think this was a solid print. The stock remained flat at $20.52 immediately after reporting.

Updated: June 23, 2025 at 11:51 PM EDT

Are you wondering whether to buy Premier or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies making people healthier, but in the case of Premier, we’re out. To begin with, its revenue has declined over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its subscale operations give it fewer distribution channels than its larger rivals.

Premier’s P/E ratio based on the next 12 months is 16.3x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $22 on the company (compared to the current share price of $21.89).