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Medical IT Providers Marching to Their Own Beat

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U.S. stocks headed lower Thursday morning amid the Bureau of Labor Statistics’ release of February’s Consumer Price Index (CPI) data. The inflation print showed prices rose 7.9% year-over-year, marking a 40-year high for the index. The number exceeded January’s 7.5% rise and was more or less in line with expectations.

Late last year, the Federal Reserve finally succumbed to the notion that this time around, inflation was not ‘transitory’ as Chairman Powell had suggested many times before. As prices have skyrocketed across the board, the Fed is set to raise rates next week. According to Bloomberg, the consensus amongst economists seems to indicate a peak in inflation within the coming months.

It’s been a difficult market environment this year, but some pockets of the market have still been working. Obviously, energy and commodity-related names have led the way. Another area that has weathered the volatility fairly well with some individual companies outperforming is healthcare.

Knowing this, how can we go about finding leading stocks?

That’s where our proprietary Zacks Rank comes in. This ranking system is based on the most powerful force affecting stock prices – earnings estimate revisions. Stocks with rising estimates have been shown to significantly outperform the market, while stocks with falling estimates tend to underperform.

The two medical companies we will analyze below are ranked favorably by this system as they are witnessing positive earnings estimate revisions. Their respective stock prices are following suit and are bucking the negative trend of the overall market this year.

Allscripts Healthcare Solutions, Inc. (MDRX)

Allscripts Healthcare Solutions is a global provider of IT solutions to healthcare organizations. The company offers electronic health records, private cloud hosting, analytics, clinical software, and connectivity solutions that enable healthcare providers to deliver care to patients. MDRX serves physicians, hospitals, governments, militaries, life-sciences companies, pharmacies, clinics, and surgery centers. Allscripts Healthcare Solutions was founded in 1986 and is based in Chicago, IL.

MDRX has been active in terms of forming new mutually-beneficial alliances recently. Last year, the IT provider entered into an agreement with the U.S. Social Security Administration (SSA), in which it will provide the SSA with the ability to electronically request and receive electronic health records. During Q4 of last year, MDRX inked a deal with Moderna to provide research, consulting and analytics services in order to gain a better understanding of the effects of Moderna’s COVID-19 vaccine on the U.S. population.

A Zacks Rank #1 (Strong Buy), MDRX has surpassed earnings estimates in each of the past seven quarters, most recently posting Q4 EPS of $0.79 – a remarkable +154.84% surprise over consensus estimates. Allscripts has delivered a trailing four-quarter average earnings surprise of +64.82%, helping push MDRX stock 40% higher in the past year. The stock is up 17.5% this year alone while the major indices have been in correction mode.

Allscripts Healthcare Solutions, Inc. Price and EPS Surprise

Allscripts Healthcare Solutions, Inc. Price and EPS Surprise
Allscripts Healthcare Solutions, Inc. Price and EPS Surprise

Analysts have revised their Q1 EPS estimates for MDRX by +38.1% in the past 60 days. The Zacks Consensus Estimate for the current quarter now stands at $0.29, which would represent 52.63% growth versus the same quarter last year. MDRX is scheduled to report the quarterly results on May 5th.

Change Healthcare, Inc. (CHNG)

Change Healthcare is an independent healthcare technology company that provides data analytics to U.S. healthcare providers. CHNG serves BlueCross Blue Shield plans, Medicare and Medicaid plans, provider-sponsored payers, insurers, as well as hospital and health systems. Change Healthcare was incorporated in 2016 and is headquartered in Nashville, TN.

If there’s one thing we can all agree on, it’s the fact that certain elements of our domestic healthcare system are slow and outdated. CHNG has been leveraging artificial intelligence and machine learning to detect these inefficiencies and eliminate them from administrative processes in the healthcare system. This also serves to lower costs and helps both patients and providers achieve better outcomes.

A Zacks #2 (Buy) stock, CHNG is relatively undervalued (13.45 forward P/E) relative to its industry group (18.76). The healthcare tech company has missed earnings estimates just one time in the past eleven quarters. Over the past four quarters, CHNG has averaged a +1.4% positive earnings surprise. The stock has held up fairly well this year (-1.8%) while the major indexes are all in correction territory.

Change Healthcare Inc. Price and EPS Surprise

Change Healthcare Inc. Price and EPS Surprise
Change Healthcare Inc. Price and EPS Surprise

Analysts covering CHNG have increased their current-quarter EPS estimates by +2.38% in the past 60 days. The Zacks Consensus estimate is now $0.43, reflecting growth of over 2% versus the same quarter a year ago. CHNG is scheduled for its next earnings report on May 25th.


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