Pro Medicus (ASX: PME) has won another sizeable contract in the US. Is it time to buy shares?
What is Pro Medicus?
Pro Medicus is a Melbourne-based software owner and developer, licensing products to large US hospitals and Australian radiology clinics. The company has offices in Richmond, Victoria, Berlin, Germany and in the United States.
Here’s what Pro Medicus just announced
Pro Medicus has announced a $22 million, 5-year contract with Northwestern Memorial Healthcare, an academic medical organisation based out of Chicago.
The five-year deal is transaction-based with committed minimums, meaning the company benefits each time its software is used by radiologists and doctors. The setup will see the hospital’s radiology teams start using Pro Medicus’ Visage 7 product, which will be deployed across all of Northwestern’s radiology departments. Once completed, Northwestern will have a single, enterprise-wide implementation of Visage.
Pro Medicus is pleased with the deal because not only is it large, but Northwestern has a good standing in the medical and medical research communities.
Northwestern was one of the opportunities in the pipeline that Pro Medicus had previously communicated to investors about. Some of those opportunities are looking at multiple products. Some of these deals can take a while to set up.
How is COVID-19 affecting Pro Medicus?
The company did see decreased volumes in late March and the first two weeks of April. But since then exam numbers have been steadily increasing week on week. Australia is now at near normal levels, with some areas of the US following closely behind. Even the worst hit areas of the US are resuming elective procedures.
Perhaps most importantly, a lot of work has only been deferred and still needs to be done.
Pro Medicus said that its pipeline remains strong and there hasn’t been any delay to opportunities.
At almost $30 the Pro Medicus share price looks very expensive again. But it’s a great business and interest rates are lower. The Pro Medicus share price is up 1% this morning.
It has one of the highest EBIT margins (click here to learn what EBIT means) out there, so a lot of this new revenue will fall straight to the bottom line. I also like that Pro Medicus has no debt with a rising cash balance. I’d think about buying it if it was sold off again, but I’d rather look another technology share like Pushpay (ASX: PPH) first.
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
