Six Best & Worst Health Care IT Stocks

The debate in health care IT -- which is focused on the pace at which the market will see the materials increases from the long-term growth prospects of these companies -- can be seen in its most acute form in the case of Computer Programs & Systems(cpsi). The fourth-quarter earnings of CPSI [see above] were not slightly disappointing, but downright bad, according to many analyst outlooks. CPSI was trading at $36 on Monday afternoon, well off a 52-week high of $50, attained in December 2009.

Analysts noted that CPSI missed earnings estimates in the last quarter, but the market didn't care. In its fourth quarter earnings, net income went down more than 25% year on year, as the company hired significantly more sales and training staff for its market of rural hospitals than the street had been expecting.

Sidoti's Hoover explained that the CPSI market is rural hospitals with under 100 beds, and it is a market that has had a greater freeze in spending than the health care sector more generally. "Demand from prospects has not come through as hoped, and CPSI did lots of hiring to spur a material increase in revenue -- but that material increase didn't materialize quickly," Hoover said. "The market normally wouldn't react with the level of punishment it meted out to CPSI, but expectations have been reset. They have a large opportunity in the space, but the short-term numbers need to come down," Hoover said, adding that his current price target is $42 for CPSI and he still has a neutral rating on the stock.

CPSI dropped approximately 15% in the one day following its weak earnings.

Brean Murray's Jones said the CPSI selloff is overdone at this point. "Yes, their margins were atrocious in the past quarter, but when the demand does start to come, CPSI is in the most underpenetrated market. These rural hospital systems have not been purchasing for the last ten to 15 years and they will see the biggest level of investment, not in dollars amounts, but in the level of activity," Jones said.

Stifel Nicolaus' Weller said in the case of Quality Systems, what it reported in the fourth quarter would have been fine in any quarter previous to this one. "We didn't think that the fourth quarter was going to be the inflection point, the put up or shut up point. We didn't see that coming, but something changed pretty quickly," Weller said.

Now investors need to think through the sudden change in health care IT and ask, has that pullback created an opportunity?

For the answer to that question, all eyes will be on bellwether health care information stock Cerner's earnings on Tuesday.

-- Reported by Eric Rosenbaum in New York.

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