This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Only Way You Should Be Investing in Stocks Right Now

Allscripts' troubles means earnings per share are constrained, likely staying below $1 this year and next. Yet if management can make the right moves to fix the business and return margins to historical levels, then EPS could move sharply higher. In the interim, the $200 million stock buyback can be used to aggressively reabsorb shares while they remain deeply out of favor. And this isn't a one-time move. In fact, there is already another $200 million buyback plan in place -- and even after that $400 million total is earmarked, Allscripts still has $350 million available for future buybacks.

So why should investors expect profits to eventually move higher? It's because the current numbers are being affected by a series of controllable factors that can be fixed. Allscripts' expenses have spiraled too high as management never made a big cost-cutting push after the company's mishandled merger with hospital information systems provider Eclipsys.

Indeed, the recent moves to bring in fresh management and a new chairman will likely lead to those cost-cutting measures investors had already expected to see. As analysts at Auriga Securities note, "the problems at Allscripts stem from the top, and we wouldn't be surprised to see further leadership turnover." That creates uncertainty right now, and shares may languish until the new team is fully in place and investors hear more about their turnaround strategies.

Yet Auriga's analysts, even as they rate shares a "hold," have a $14 target price, nearly 30% above current levels. And that target is based on very low expectations: By their math, shares are worth more than 15 times the downwardly-revised 2012 EPS of 90 cents (15 x 90 cents = $13.50). That multiple currently stands at 12.

To put that in perspective, rival Cerner (CERN) trades for around 35 times projected 2012 profits. Both of these companies operate in the same high-growth industry. And Cerner surely deserves a premium for better execution, but should Cerner's P/E be higher by a factor of three? If anything, Cerner is operating at peak levels and has little fat to cut. Allscripts's profit potential is more robust, simply because it is currently too bloated and also has room for improvement in terms of sales force execution.

2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.75 -1.13%
FB $80.78 -1.86%
GOOG $524.05 -1.83%
TSLA $206.79 0.04%
YHOO $44.45 -2.91%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs