Macro Intelligence: Pro Medicus achieves impressive growth, sealing major contracts

Article written by Nadine Blayney (ausbiz)

Deep dive into Pro Medicus

In this week’s edition of IG Macro Intelligence, we take a deep dive into Pro Medicus.

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Pro Medicus (ASX:PME), (NYSE:PMCUF), develops and supplies healthcare imaging software, radiology information system software, and services to hospitals, diagnostic imaging groups, and other related health entities in Australia, North America, and Europe.

Pro Medicus (PME) reported record sales in financial year 2024 (FY24) and a full-year net profit of $82.8 million for the year ending June 2024, up 36.5% from the previous year.

Highlights included:

• Revenue: $161.5 million (up 29.3%)
• Underlying profit before tax: $116.5 million (up 35.3%)
• Underlying earnings before interest and tax (EBIT) margins: 69.5% (up from 67.2%)
• Cash and financial assets: $155.4 million (up 27.9%)
• Final dividend: 22 cents per share, totalling 40 cents fully franked for the year (up 33.3%)

PME revenue chart

The healthcare company saw strong growth in North America, with revenue up 34.4%, and a 5.9% increase in Australia. European revenue fell 6.7% due to a one-time sale to a German hospital last year.

Pro Medicus secured nine major long-term contracts in FY24, valued at $245 million. Notably, they signed a $140 million, 10-year deal with Baylor, Scott and White, the largest non-profit healthcare system in Texas and one of the largest in the US.

New contracts chart

Chief Executive Officer (CEO) Dr Sam Hupert told ausbiz they’re seeing "steady progress with its AI and other-ologies," noting that the pipeline "remains strong."

Defying gravity

Shares have been surging over the past year and are up more than 110%. Year-to-date (YTD) Pro Medicus has gained 56%.

PME daily price chart

Australian Securities Exchange (ASX) Tradewatch data show Pro Medicus (PME) appears to be in a strong bullish trend. The 5-day moving average of the stock price is above the 20- and 50-day moving averages, while a long-term bullish signal is confirmed by the 200-day moving average, which is also trending higher.

Its price-to-earnings ratio is sitting at 189.61, according to Refinitiv data.

It’s outperforming other stocks in the healthcare sector, with Refinitiv data showing Cochlearshares are underperforming Pro Medicus by 55.2% year to date, and Ramsay Health Care has underperformed by 67.7%. Sonic Healthcare has underperformed Pro Medicus by 69.5% YTD.

Under the microscope

So, are Pro Medicus shares still a buy or too expensive?

Analysts have been lifting their price targets after its FY results.

James Gerrish from Shaw and Partners says "it’s hard to put anything but a BUY on PME."

Refintiv mean chart

However, the median outlook according to Refinitiv data is a HOLD.

Jefferies says Pro Medicus's outlook commentary is positive, and while it has maintained its HOLD rating on the stock, it lifted its price target to $140.00 from $120.00.

Similarly, Citi hiked its price target on the stock to $100.00 from $95.00; however, it has retained its SELL rating, expecting that significant revenue and earnings per share (EPS) growth won’t come until the end of the decade. Citi says Pro Medicus's current valuation implies even higher growth, but it may get more difficult to achieve due to its present market share.

Meanwhile, Morningstar has flagged potential risks from competition and says shares remain overvalued with "a lot of expectation baked in."

Barrenjoey, Macquarie, Morgans, Goldman Sachs, Bell Potter, and Wilsons have also increased their price target on the stock. Macquarie sees Pro Medicus rising to $152.50, a 20% upside from its previous price target.

Yet only three of 14 analysts rate Pro Medicus a BUY or higher, according to London Stock Exchange Group (LSEG) data. Nine brokers have a HOLD rating; two have a SELL or lower. The average current target price is $135.13, which suggests a more than 9% drop from current levels.

PME FNArena chart