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Change Healthcare Inc. CHNG is well-poised for growth backed by strength in artificial intelligence (AI) and machine learning (ML) efforts, and a robust payment accuracy business. However, stiff competition remains a concern.
The stock has soared 100.7% against the industry’s decline of 2.7% in a year’s time. Meanwhile, the S&P 500 Index has rallied 37.5%.
Change Healthcare — with a market capitalization of $6.86 billion — is an independent healthcare technology platform offering data and analytics-driven solutions to boost clinical financial and patient engagement outcomes in the United States. It anticipates earnings to improve 2% over the next five years. Moreover, the company has a trailing four-quarter earnings surprise 30.4%, on average.
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Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
Factor Hurting the Stock
The market for healthcare information technology (HCIT) solutions, devices and services is extremely competitive and rapidly evolving. Consequently, intense competition can weigh on the company’s pricing and margins.
Change Healthcare has been utilizing AI and ML to detect inefficiencies and eliminate them from administrative processes in the healthcare system, thereby lowering costs and helping payers, providers, and patients with better outcomes.
Per the fiscal fourth-quarter 2021 earnings call, the company saw increased volumes stemming from new business, sustained growth in its application programming interface (API)-related transaction volumes and from its all payer electronic attachment service. It witnessed growing traction in new high value-added solutions like its Connected Consumer Health e-commerce suite.
Presently, its marketplace provides around 71 API and software as a service (SaaS) products, offering solutions that aid in revenue cycle management, payments and medical network workflows. During the quarter under review, the company processed approximately 170 million API transactions and is presently processing over 50 million API transactions per month.
During third-quarter fiscal 2021, the company completed the divestiture of its Capacity Management business for $67.5 million. The sale, which is in sync with Change Healthcare’s strategy, will enable the company to focus on the key areas of its business that can deliver the best possible outcomes for customers through the strength of its platform.
With respect to Payment Accuracy business, the company is committed toward healthcare plans and payers generating double-digit growth for the same. The company’s end-to-end solution helps drive accuracy early in the payment cycle, thus lowering administrative costs and reducing friction.
Per the fourth-quarter fiscal 2021 earnings call, with respect to its payment accuracy solutions, the company continues to expand its relationships with a wide range of customers, including some of the largest payers in the country and leading healthcare technology providers that are part of its partner community.
Change Healthcare has been witnessing an upward estimate revision trend for fiscal 2022. In the past 90 days, the Zacks Consensus Estimate for its earnings has moved north by 6.3% to $1.69.
The Zacks Consensus Estimate for fiscal first-quarter 2022 revenues is pegged at $851.9 million, suggesting growth of 22.7% from the year-ago reported number.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Henry Schein, Inc. HSIC, Envista Holdings Corporation NVST and Align Technology, Inc. ALGN, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein’s long-term earnings growth rate is estimated at 11.2%.
Envista Holdings’ long-term earnings growth rate is estimated at 26.4%.
Align Technology’s long-term earnings growth rate is projected at 23.2%.
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