Barclays Sees 29% Upside For Premier, Starts At Overweight

Barclays has initiated coverage of Premier Inc (NASDAQ: PINC) with an Overweight rating and $41 price target, implying 29 percent appreciation from current levels.

Premier operates as a healthcare improvement company in the United States. The company operates healthcare group purchasing organizations and also provides integrated data, analytics, and supply chain solutions.

"Given consolidation in the hospital Group Purchasing Organization (GPO) industry, we have focused our research efforts on validating PINC's unique performance improvement approach (i.e. evaluating cross-sell opportunities) and examining historical GPO share shifts (i.e. understanding potential share gain opportunities)," analyst Eric Percher wrote in a note.

Percher expects Premier to provide conservative initial guidance in July for about 10 percent EBITDA growth in FY17 (end-June) but expect that "continued cross sales, incremental GPO share gains, and M&A will provide upside over the course of the year."

The analyst highlighted Premier's new customer opportunities from recent competitive developments in the GPO market. The recent VHA-UHC's acquisition of MedAssets and continued client losses at Intalere/Amerinet should provide a "steady flow of new client opportunities."

"Our projections assume PINC's GPO can gain $700mn of incremental purchasing volume via share gains in FY18, equating to $6mn in net admin fees and $5mn in EBITDA (before considering cross sell opportunities)," Percher noted.

"Our analysis of potential share shifts suggest the actual result could be twice that amount (driving +1-2% incremental EBITDA)," the analyst added.

In addition, the analyst's PO channel checks suggest Premier's performance improvement capabilities are increasingly valued. Percher said the recent client wins made clear the company's value proposition extends well beyond its GPO peers and is applicable to both equity and non-equity holders.

As a result, the analyst's concerns over 2018 contract renewals are mitigated and increased his confidence in Premier's substantial cross-sell opportunities.

Shares of Premier closed Tuesday's regular trading session at $31.80.