Quality Systems Inc.'s shares jumped Monday after a Sterne Agee analyst upgraded the company's price target and stock rating.
THE SPARK: Sterne Agee analyst Greg Bolan said in a research note that the market has been short-sighted on the company's future prospects. Bolan believes there is a turning point ahead for the company's earning power and that market estimates are too low. He expects its earnings will increase in 2014.
He also said the company's leadership appears to be taking plans for a "strategic evaluation" of the company seriously.
Bolan upgraded the company's rating to "Buy" from "Neutral" and upgraded the price target to $28 from $24.
THE BIG PICTURE: Quality Systems, based in Irvine, Calif., sells health care information systems that automate medical and dental practices.
The company has struggled because of changing trends in ownership in health care, which have hurt demand. Bolan said the company has missed market expectations for revenue during the past four quarters, and that has sent its stock to trading levels well below that of its peers.
Quality Systems also has been embroiled in a proxy fight. The company said earlier this month that it has resolved the dispute with Clinton Group by adding three candidates chosen by the investment firm to its board of directors.
The investment firm has contended that the company has missed out on growth opportunities created by recent health care reform law and other market changes. It also has criticized the company for paying dividends to shareholders instead of investing in its business and made a mistake by focusing on smaller practices and business instead of targeting larger hospital groups.
Clinton has argued that the company's directors were not a good fit and said the board needed more experience with the health care information technology industry.
THE ANALYSIS: Bolan also noted that as part of its agreement with Clinton, the company plans to hire outside consultants to complete a review of the company's strategy, direction and alternatives, which will be presented to the board in November.
The analyst said he has been somewhat skeptical in the past of founder and Chairman Sheldon Razin's willingness to sell the company. Razin has a powerful voice on the board and members often follow his lead, the analyst said. But Bolan said it is clear from recent actions that he and the board are now open to a strategic evaluation.
SHARE ACTION: Shares increased 75 cents, about 3.5 percent, to $21.90 by early afternoon. Its stock is at the upper end of its 52-week trading range of $15.86 to $23.38.