BULLISH TAKE: Athenahealth is not a software company, but an outsourcing company, and expectations for its operating margins are too high, said Einhorn, the president of hedge fund Greenlight Capital. Moreover, the company will not be able to effectively compete against larger players in the space, Einhorn contended during his presentation at the Ira Sohn investor conference.
ANALYST DEFENSES: One firm contesting Einhorn's thesis in a note to investors earlier today was Citigroup. athenahealth is a software-as-a-service company, since it provides cloud-based products that are largely automated and purchased by its customers for a year at a time, wrote Citi analyst Garen Sarafian. Athenahealth's margins are in-line with its SAAS peers and they should rise as the company's marginal costs decline, while the company has minimal upfront costs, Sarafian said. Additionally, there is room for both athenahealth and competitor Epic to win in the space, added the analyst, who kept a $200 price target and Buy rating on athenahealth. PiperJaffray analyst Sean Wieland was even more upbeat, saying that the stock has reached its best entry point in years. Athenahealth is more than just an outsourcing company and it does not compete head-to-head with Epic, which focuses on the hospital sector, according to the Piper analyst. He reiterated a $220 price target and Overweight rating on the shares.
BEARISH TAKE: Conversely, David Francis, an analyst at RBC Capital, wrote that Einhorn's theories about the challenges facing athenahealth will prove to be largely correct over the longer term. However, the company will have several positive catalysts in the near-term, including strong demand from smaller medical offices for the company's systems, the possibility that the company could announce several deals with larger enterprises, and the disclosure of additional partners for its Enterprise Coordinator inpatient management system, Francis forecast. Although Francis thinks these near-term events "are likely to give bulls a shot in the arm," he kept a Sector Perform rating on the shares due to what he sees as the longer term issues facing the company.
WHAT'S NOTABLE: In slides ahead of its presentation today at Baird's 2014 Growth Stock conference, athenahealth repeated its FY14 adjusted earnings per share outlook of 98c-$1.10 and its revenue view of $725M-$755M.
PRICE ACTION: In early trading, athenahealth sank $15.88, or 12.5%, to $110.90. Reporting by Larry Ramer.