'Clear incumbent technology leader': Why Pro Medicus shares can keep rising

This market-beating tech share could have more gains ahead according to Goldman Sachs.

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Pro Medicus Limited (ASX: PME) shares were on fire on Tuesday despite the market weakness.

The health imaging technology company's shares stormed 12% higher to a record high.

Investors were scrambling to get hold of its shares after it announced a massive $140 million contract win. The 10-year contract is with Baylor Scott & White Health (BSWH), which is the largest not-for-profit healthcare system in Texas and one of the largest in the United States.

This latest gain means that Pro Medicus shares are now up over 50% since this time last year.

Can Pro Medicus shares keep rising?

The good news is that Goldman Sachs doesn't believe it is too late to invest.

According to a note, the broker has responded to the company's news by reiterating its buy rating with an improved price target of $88.00.

This implies a potential upside of approximately 10% from current levels.

What did the broker say?

Goldman notes that this contract is the largest it has won to date. Importantly, it highlights that the $140 million figure marks the minimum revenue that it would generate over the term, set at a level below the customer's current volumes.

The broker also sees scope for add-ons (AI or cardiology) that could boost revenue even further in the future.

Commenting on the significance of the deal, it said:

The transaction is significant for a number of reasons: (1) the minimum annualised value of A$14.0m/year is 5.4x the historical average contract size, reminding of the size of the future revenue opportunity (after BSWH, we believe PME operates at c.10% share of US radiology volumes and with limited reason to doubt further material upside from here); (2) it continues to demonstrate PME's compelling product offering/value proposition to a broadening range of customers across different sizes/specialties/regions (a key component of our Upgrade to Buy in July); and (3) BSWH represents PME's first major client in Texas, and hence provides a platform for further growth (direct validation/referral effect across both the state and the country).

Goldman concludes:

We view PME as the clear incumbent technology leader in a growth market with low-risk market share upside from c.10% today, and the optionality to broaden/deepen into a platform solution for adjacent/complementary offerings.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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.

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