Why are Pro Medicus shares surging more than 10%?

Pro Medicus Ltd (ASX: PME) shares have surged more than 10% on solid profit results, with the company saying its pipeline of inbound work is “very strong” going forward.

And at least one broker has a bullish share price target on the company, with Barrenjoey expecting the shares to appreciate to $210, up from $197.45 currently, up 12.3% on the day.

Pro Medicus profit increase in the double digits

The digital imaging software company reported full year revenue of $261.7 million, up 22.9% while underlying net profit was $144.7 million, up 24.1%.

Pro Medicus remains debt free with cash on hand of $252.3 million, and will pay a fully franked final dividend of 37 cents per share, up from 30 cents.

On the operational front the company said it had signed 10 new contracts worth a minimum of $407 million and renewed six out of six existing contracts worth $141 million on five year terms.

Pro Medicus Chief Executive Officer Dr Sam Hupert said the result was in line with expectations.

He added:

We were aiming for 30% increases in EBIT and NPAT, and we exceeded both on a constant currency basis. We continue to be able to address a broad range of market segments, with clients ranging from smaller sub specialised health systems through to some of the largest IDNs and academic medical centres in the US. Importantly, we have proven that with one platform and one business model we can address virtually every opportunity in diagnostic imaging, providing us with the largest total addressable market (TAM). Progress made in the cardiology market represents another important string to our bow. We see this trend continuing.

Pro Medicus to get an AI tailwind

Dr Hupert also said the company was becoming more convinced that AI would be a benefit to the company.

He added:

I have always maintained that AI and healthcare are a strong match, particularly in diagnostic imaging, and we are starting to see examples of this emerging. We are ideally positioned to benefit from this transition as we are the radiologist’s desktop and therefore the gateway for the output of image-based AI. Our platform is now used by approximately 11% of the US market, including 11 out of the top 20 healthcare institutions in the US and growing. This gives us a very material base upon which we can layer AI, whether it is via our own algorithms, those we co-develop with our research partners or 3rd party algorithms.

During the year the company invested $10 million in each of 4DMedical Ltd (ASX: 4DX) and Echo IQ Ltd (ASX: EIQ) which Dr Hupert said were strategic investments which had also done well from a return on capital perspective.

Pro Medicus is valued at $18.4 billion.