Why you should buy this ‘industry leading’ ASX 200 tech stock

Pro Medicus Limited (ASX: PME) shares overcame the market weakness on Tuesday and pushed higher.

The ASX 200 tech stock rose 1% to end the day at $114.31.

Why did this ASX 200 tech stock rise?

Investors were bidding the health imaging technology company’s shares higher after it announced five new contracts with a combined minimum contract value of $45 million.

These contracts will be fully cloud deployed and are expected to be completed within the next six months.

The contracts are as follows:

• A $9.5 million, five-year contract with Consulting Radiology, a private radiology group in Minnesota.
• An $11.5 million, seven-year contract with Nationwide Children’s Hospital. It is a leading paediatric hospital in Columbus, Ohio.
• A $6.5 million, five-year contract with Nicklaus Childrens Hospital, a leading paediatric hospital in Miami, Florida.
• A $9 million, eight-year contract with Moffitt Cancer Center in Tampa, Florida.
• An $8.5 million, five-year contract with US Radiology Specialists. It is a partnership of physician owned radiology practices.

These contract wins bring the company’s minimum total contract value (TCV) for new sales this financial year to $245 million.

Broker reaction

This morning, analysts at Goldman Sachs have responded very positively to the news.

According to the note, the broker has reiterated its buy rating with a slightly improved price target of $136.00.

Based on where the ASX 200 tech stock currently trades, this implies potential upside of 19% for investors over the next 12 months.

Commenting on the contract wins, the broker said:

PME continues to demonstrate Visage’s compelling product offering and value proposition to a broadening range of customers across different sizes and specialties (i.e. children’s hospitals and private radiology groups where the market is evolving, with more tenders coming to market). This provides a platform for further growth (direct validation & referral effect), supporting a positive TAM runway for Visage which currently commands c.7% market share of US imaging volumes (GSe +13% in FY30E) – a key component of our Buy Initiation in April; (2) All contracts to be fully cloud-based, and we believe Visage is the only solution available that can be fully cloud-deployed at this scale, and hence represents a tangible competitive advantage, as highlighted today; and (3) the announced contract sizes contain no direct component from either AI or Cardiology, which should present upside optionality through the mid-term.

‘Industry leading’

All in all, this news reinforces the broker’s bullish view on the ASX 200 tech stock and its “industry leading” technology. It concludes:

In our view, PME is well positioned into FY25 given a full year benefit of some large and high profile contracts, in addition to the accelerating frequency and size of new contract wins. We see PME’s software Visage 7 as an industry leading solution with two distinct advantages relative to peers — speed and cloud capabilities — that have influenced the choice of PACS vendor. Given this, PME is benefiting from an industry network effect, and we forecast share gains to 13% in FY30E (c.7% today) as more hospitals move to modern systems. PME is expanding into adjacent solutions including AI and Cardiology which could provide significant upside given we believe PME is the incumbent technology leader in radiology, and is well-placed to take share in both markets.

The post Why you should buy this ‘industry leading’ ASX 200 tech stock appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Pro Medicus. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Pro Medicus. The Motley Fool Australia has recommended Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.