Pro Medicus hits all-time highs. Here's what's driving the record move

Pro Medicus (ASX: PME) announced two significant contracts on Thursday, including its largest contract win of the year—a $170 million deal with Colorado-based UCHealth. The stock opened sharply higher, surging as much as 9.7% in early trade to a record high of $313.

Despite the company's elevated valuation, Pro Medicus continues to demonstrate its ability to maintain a steady flow of new contracts while successfully renewing and upgrading existing customers on favorable terms. Each contract win provides valuable insights into client profiles, including organisation size, minimum annualised contract values, technology stack implementations, and emerging features like AI and specialised cardiology solutions.

Today's Contract Wins

The first announcement involved a $20 million, five-year contract renewal with Louisiana-based Franciscan Missionaries of Our Lady Health System. This renewal includes the Visage 7 Viewer at higher per-transaction costs, plus a new contract for Visage 7 Open Archive.

The next was a $170 million, 10-year contract with UCHealth, spanning a network of 14 hospitals with affiliate facilities throughout Colorado, Wyoming, and Nebraska. The contract will implement a comprehensive enterprise imaging platform featuring Visage 7 Viewer, Visage 7 Workflow, Visage 7 Open Archive, and Visage 7 Cardiology Imaging.

"Notably, they have also opted for our cardiology offering which will provide UCHealth with a truly unified enterprise imaging solution, a trend we see continuing as more healthcare enterprises look to consolidate their disparate imaging systems," Dr Hupert explained.

He added: "Our pipeline remains strong and spans all market segments. There is growing interest in our 'full stack' solution comprising all three core Visage products (viewer, workflow, and archive), with the added option of specialised applications such as cardiology."

Historical Contract Performance

Earlier this year, I analysed Pro Medicus' contract wins between January 2023 and January 2025. Here are some of the key findings:

• Largest contract was Trinity Health $330 million (27-Nov-24) for a yen-year contract

• Average contract value of $46.6 million

• Average contract term was seven years

On contract announcement days, Pro Medicus shares typically:

• Rise an average of 1.8% (median gain of 0.9%)

• Close positive 83.3% of the time

However, intraday volatility tells a different story, with shares averaging a 0.3% decline from open to close, finishing higher only 50% of the time.

Impact of Large Contract Wins

Substantial contract announcements generate more significant market reactions. The two contracts exceeding $100 million within the analysis period both delivered strong returns:

• Trinity Health ($330m, November 28, 2024): shares rallied 8.6%

• Baylor Scott White ($140m, July 27, 2023): shares surged 12.8%

The Trinity Health contract's minimum annualised value of $33 million represents a material step-change, running over 13 times higher than the historical average of $2.5 million per annum. Despite this substantial win, Goldman Sachs maintained its $221 target price as of November 28, 2024, implying a 3.2% downside at the time.

Where to From Here?

Today's dual contract wins reinforce familiar themes from previous major announcements. Analysts will likely continue wrestling with valuation concerns while maintaining positive views based on contract momentum. The UCHealth deal highlights growing adoption of specialised applications beyond core radiology, while the Franciscan Missionaries renewal demonstrates both pricing power through higher transaction fees and cross-selling opportunities within the existing client base.

With the stock now trading at record levels and buoyed by a bullish market backdrop (the Nasdaq recently hit record highs), analysts face the ongoing challenge of justifying Pro Medicus' premium valuation. The company's PE ratio has returned to approximately 300x, yet the underlying contract momentum remains difficult to dismiss.