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Here's Why You Should Retain Allscripts (MDRX) Stock for Now

Zacks Equity Research

Allscripts Healthcare Solutions, Inc. MDRX is well poised for growth backed by lucrative deals, innovation and strong prospects in Sunrise electronic health record (EHR) platform. However, margin contraction remains a concern.

Shares of Allscripts have lost 43.9%, compared with the industry’s decline of 0.6% in a year's time. Meanwhile, the S&P 500 Index gained 2.1% in same timeframe.

The company, with a market capitalization of $1.06 billion, provides information technology (IT) solutions and services to healthcare organizations. It anticipates earnings to improve 6.3% over the next five years. Moreover, its return on equity currently stands at 4.9%.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).



What’s Deterring the Stock?

Margin contraction raises a concern for the company. In the first quarter, Allscripts encountered some headwinds. Gross profit in the first quarter was $157 million, down 9.8% from the year-ago quarter. As a percentage of revenues, gross margin was 37.7%, down 262 basis points (bps) from the year-ago figure.

What’s Favoring the Stock?

Innovation continues to be a key catalyst. In the first quarter, the company’s Veradigm business unit launched AccelRx — a unique new software solution for specialty medication management.

We believe that the Sunrise and Paragon EHR platforms are key growth drivers. Notably, Allscripts Sunrise is a fully integrated EHR platform that connects all clinical and financial aspects of a hospital or health system for inpatient, emergency and outpatient care.

In March 2020, Allscripts announced that its clients throughout the country have signed up to rapidly facilitate telehealth visit capabilities to their patients. The company created a specialized plan for clients to swiftly implement telehealth at their organizations through its EHR-agnostic patient engagement platform — FollowMyHealth. Through this, the company’s clients signed up to deliver telehealth visit capabilities swiftly to their patients. This service proved crucial to efforts in curbing the spread of the coronavirus.

Lucrative deals continue to boost the company’s product portfolio. In May 2020, Allscripts’ business unit Veradigm, a leading provider of data and technology solutions, inked a deal with Surescripts to enhance its Veradigm AccelRx specialty medication fulfillment solution with Surescripts Specialty Patient Enrollment. The deal will enable AccelRx to support healthcare providers in fulfilling prescriptions faster for more types of specialty medications. This deal is specifically expected to bolster Allscripts’ Clinical and Financial Solutions segment.

Which Way are Estimates Headed?

For 2020, the Zacks Consensus Estimate for revenues is pegged at $1.71 billion, indicating a decline of 3.7% from the prior-year period. The same for earnings stands at $62 cents per share, suggesting a decrease of 7.5% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include West Pharmaceutical Services, Inc. WST, Quest Diagnostics Incorporated DGX and Laboratory Corporation of America Holdings LH. While West Pharmaceutical and Quest Diagnostics sport a Zacks Rank #1 (Strong Buy), Laboratory Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.

Quest Diagnostics has an estimated long-term earnings growth rate of 7.6%.

Laboratory Corporation has an estimated long-term earnings growth rate of 6.1%.

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