Launching Coverage on Medline, a Medical-Surgical Giant, With a $45 Fair Value and a Narrow Moat

Medline is the largest provider of medical-surgical products and supply chain solutions in the US. With over $25 billion in revenue, Medline distributes more than 335,000 stock-keeping units to various points of care, including acute care, ambulatory surgery centers, physician offices, clinical labs, and emergency medical services. The firm aims to drive growth by winning new prime vendor customers via end-market expansion and Medline brand penetration. Prime vendor relationships, which account for over 60% of Medline’s total revenue, enable Medline to secure the majority of med-surg sales from a single customer. This improves working relationships between Medline and its customers by offering cost savings on the customer end and securing a long-term contract on Medline’s end. And since the firm has enjoyed a 99% retention rate on prime vendor customers since 2020, we think new contracts should lead to nice long-term tailwinds. Once a customer is won, Medline looks to increase its share of customer spending by improving its brand penetration. Prime vendor relationships mainly exist in the acute care channel, but the firm has done a nice job expanding into the non-acute space and facilities not affiliated with a hospital system. We expect Medline to continue to focus on expanding prime vendor relationships, as they help expand margins, improve order predictability, and increase switching costs.