On Feb 21, we retained Allscripts Healthcare Solutions, Inc. (MDRX), a leading healthcare information technology (“HCIT”) solutions provider, at Neutral after the company missed the Zacks Consensus Estimates for revenues and earnings in fourth quarter 2012.
Why the Retention?
Allscripts posted fourth-quarter 2012 adjusted earnings of 8 cents per share, missing the Zacks Consensus Estimate of 17 cents per share. Revenues in the reported quarter dropped 9.6% year over year to $350.9 million, trailing the Zacks Consensus Estimate of $367 million. Bookings in the reported quarter were $180.7 million, a decrease of 44.8%.
Over the past month, the Zacks Consensus Estimate for 2013 has moved down by four cents to 63 cents while the same for 2014 has also dropped by four cents to 70 cents during the same timeframe.
The federal Stimulus program is gradually winding down. The results may be viewed in light of consolidation in an industry approaching maturity with a drop in greenfield opportunities but growth in the replacement market.
Allscripts has a prominent market share in both inpatient and ambulatory settings. Since incumbency is deemed to be the most significant competitive advantage, we believe the company will be a good performer in the long run.
In Dec 2012, the management of the company finished its evaluation of strategic alternatives. We view the absence of timely guidance as indicative of the uncertain ownership pattern of the company.
Cerner faces stiff competition from other established HCIT players, such as Athenahealth (ATHN), including low-cost cloud-based models.
Other Stocks to Consider
We currently have a Zacks Rank #4 (Sell) on Allscripts. However, we are more positive about other stocks such as Merge Healthcare Incorporated (MRGE) and Becton, Dickinson and Company (BDX) both of which carry a Zacks Rank #2 (Buy) and are expected to do well.
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