We downgrade our rating to Neutral for Allscripts Healthcare Solutions (MDRX). Its first quarter earnings per share of 10 cents missed the Zacks Consensus Estimate of 20 cents.
Reported net income for the quarter was $5.8 million (or 3 cents per share) compared with a net income of $12.6 million (or 7 cents per share) in the year-ago quarter. The lower profit was on account of several factors such as deterioration in sales mix and expenditures for marketing and product development.
Allscripts reported sales of $364.7 million in the first quarter, lagging the Zacks Consensus Estimate of $388 million. Sales were below forecast on account of deferred purchases by clients and restructuring of the sales force. Bookings came to $194.6 million, a decrease of 8.4% year over year.
We view the reduced guidance as indicative of the company’s weakened competitive position. Moreover, the company’s ability to integrate large acquisitions remains to be proven. Further, there has been a decline in bookings on account of client concern about product updates and product integration.
The health care information technology market is competitive and price sensitive. Among others, Allscripts faces strong competition from Cerner Corp. (CERN), Quality Systems (QSII) and Athenahealth (ATHN).
However, optimism about the growth prospects of select HCIT service providers remains somewhat high under the Obama Administration, which passed the Stimulus package in May 2009, aimed at increasing the use of electronic health record (“EHR”) systems by medical practitioners.
The company has widened its user base after its mergers with Misys and Eclipsys and increased cross-selling opportunities. We believe that Allscripts is well positioned in the fast growing business of selling EHR/EMR to physician practices as well as inpatient settings.
The acquisition of Eclipsys provides the company with an acute care product for sale in concert with its ambulatory services. We opine that acute and ambulatory care will continue to converge in future and that Allscripts is well positioned to provide integrated clinical applications that will permit health care providers to satisfy HITECH Act requirements and eventually comply with an outcomes-based reimbursement system.
The stock currently retains a Zacks #4 Rank, which translates into a short-term “Sell” recommendation.Read the Full Research Report on CERN
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