Morgan Stanley: Medline’s third-quarter beat exceeds expectations; 2027 earnings framework below consensus

Third-quarter beat: how much of the incremental profit came from refunds?

Revenue in the third quarter of 2026 was 7.856 billion dollars, up 10.4% year over year. Organic sales grew 10.5%, above the consensus estimate of 8.5%, but slightly below the 10.7% recorded in the same period last year. Adjusted EBITDA was 960 million dollars, above the consensus estimate of 851 million dollars.
The profit beat did not consist entirely of one-off items: 81 million dollars in net tariff refunds was included in adjusted EBITDA for the quarter. Excluding the refunds, EBITDA was about 879 million dollars, still above consensus. Segment performance was mixed: Supply Chain Solutions (SCS) revenue grew 13.9%, but EBITDA was 184 million dollars, below the expected 210 million dollars, and its margin was 4.4%. Medline Brand revenue grew 6.6%, and EBITDA was 943 million dollars, including the refund benefit noted above.

The company raised its 2026 organic sales growth guidance from 9.0%–10.0% to 10.0%–10.5%, but its adjusted EBITDA guidance remained 3.3 billion–3.4 billion dollars. The guidance excludes 324 million dollars in net tariff refunds recognized through the first three quarters. Stronger sales have not yet led to higher profit guidance, reflecting continued pressure on margins from costs and investment.
Working back from management’s expectation that full-year EBITDA will be near the midpoint of 3.35 billion dollars, Morgan Stanley estimates fourth-quarter EBITDA of about 892 million dollars, below the consensus estimate of 910 million dollars. This implies year-over-year growth of about 10%, also below consensus at 13%. Thus, while full-year guidance remains unchanged, the year-end profit performance is still tracking below consensus expectations.

The company’s 2027 EBITDA growth framework is in the low-to-mid single digits. Using the midpoint of the 2026 guidance of 3.35 billion dollars and a growth range of 1%–5%, 2027 EBITDA works out to about 3.45 billion dollars, roughly 215 million dollars below the current consensus estimate of 3.666 billion dollars.
Morgan Stanley’s own 2027 EBITDA forecast is 3.47 billion dollars, down from its previous estimate of 3.6 billion dollars. It forecasts organic sales growth of 8.0%. The firm believes the company’s framework is broadly in line with what investors had previously expected, but still leaves a sizable gap versus consensus.

The company expects sales growth in the high single digits in 2027 and identifies Middle East-related costs and sales volumes as key variables. Based on management assumptions cited by Morgan Stanley, diesel is about 6.25 dollars per gallon, while oil, raw material and finished-product costs remain high; price increases can offset only part of the pressure. The company plans to implement price increases above the usual level in the first quarter of 2027 and use the opportunity to promote conversion to Medline private-label products.
New Prime Vendor customer signings offer a growth opportunity: the company is confident it can achieve its 2026 target of 1 billion dollars in new customer signings. The first Prime Vendor program in Canada and expansion of the distribution network also offer long-term growth potential. However, first-year discounts on new contracts will weigh on profits, with SCS margins expected to remain in the mid-4% range. Contract economics are expected to improve gradually by 2027; meanwhile, quality remediation is a multiyear investment, and related spending is expected to increase in 2027.
Morgan Stanley maintains its Overweight rating and 48-dollar price target, with a positive long-term view of vertical integration and growing private-label share. The near-term earnings trajectory, however, depends on whether sales volumes, cost pressures and improving margins on new contracts play out as expected.