) -- Health care information technology provider
Allscripts-Misys Healthcare Solutions
provided a reasonably solid earnings report for the second quarter on Monday morning, and even raised its net income guidance for 2010. However, Allscripts-Misys shares were down more than 6%, leading a retreat among health care information technology providers.
How a positive earnings report can lead to a negative market reaction for health care information technology player Allscripts-Misys is part and parcel of the ongoing investor uncertainty over Obamacare.
The government, of course, is going to pay back hospitals and physician groups to the tune of $45 billion to make the move to electronic records, and the bigger chunk of government money -- $25 billion -- is slated for the physician groups where Allscripts has a big business.
All of the health care IT stocks -- such as
-- have thus been on a big run up as a result of the planned adoption of electronic records.
That run ended Monday morning.
While the Allscripts-Misys earnings were in line with analyst expectations, and the company is expected to broadly benefit from the move to electronic records, the fears have been that physicians will be slower to make the move than hospitals, and that will back up earnings for the health care IT players.
Allscripts' bookings level in its earnings came in lower than expectations, at $94 million in bookings for the second quarter of fiscal 2010 (ended Nov. 30, 2009). The $94 million in bookings represented a 16% increase over the previous year's bookings level, but still fell short of widely held analyst expectations of a bookings number north of $100 million. The disappointing bookings level reinforces fears that physicians may not move as quickly as hoped to electronic systems and purchase of Allscripts' technology.
Leo Carpio, an analyst with Caris & Company, said the bear argument being reflected by the market selloff in health IT stocks today is that players like Allscripts, Athenahealth and Quality Systems won't see as much 2010 activity on electronic records adoption as 2011 activity, and that could mean shifting back the expected earnings bounce from sales by one to two quarters.
Carpio noted that a change in the "meaningful use" definition in the government legislation means that physicians only have to use the electronic records for 90 consecutive days in an annual period, rather than a full year, to be eligible for the government reimbursement. That change will allow some physicians to push back adoption, and that could cause the earnings bump for the health care IT companies to be pushed back also.
"Allscripts has set the tone now, and going into the JP Morgan health care conference, these companies will have to address this issue," Carpio said.
Athenahealth, which is 100% in the physician market, was down more than 2.7% Monday. Quality Systems was down 3%. Even Cerner, which operates at the large hospital end of the market, and would not be sensitive to slower adoption rate among physicians, was down more than 2.5% after the Allscripts' bookings shortfall. Cerner announced Monday that it will release earnings on Feb. 9.
"It won't be a wholesale slamming of the breaks that some bears think, but with today's bookings number, Allscripts has showed that the bar will be a little bit lower," Caris' Carpio said. The analyst added that he believes Allscripts shares will now hover around the $19 range for a while, until next quarter's earnings and proof of a pickup in adoption by physicians sends shares higher again.
Does that mean it is time to give these health care IT stocks another look as a potential buy? Caris has a $22 price target on Allscripts, while Maxim Group has a $23 price target. Allscripts was at $18.75 after its 5% decline on Monday morning.
Maxim Group analyst Anthony Vendetti said the pullback in the Allscripts stock price is a buying opportunity. "Allscripts will win their fair share of business, and there is still plenty of opportunity for them to capitalize on, which supports a buy and a $23 price target," Vendetti said. Vendetti said that while the bookings number was lighter than expected, market expectations have probably been too high for some of these health care IT players.
"The expectations are that numbers will come in strong all the time, and that's not realistic," Vendetti said. While he conceded that the bookings number is a concern and does indicate that sales may get pushed out a little bit, he is not adjusting his earnings models.
"Even with the lower hurdle of 90 days of consecutive use, it's not like doctors can push this out to the last three months of the year," Vendetti said. He also noted that Allscripts had one large hospital client in the past quarter, North Shore Long Island Jewish, which could have helped to make previous bookings look larger than the current quarter, which featured more small deals.
Caris's Carpio said during the earnings conference call that Allscripts' management conceded that adoption had been slower than expected among small groups and individual physicians, and that did not help instill confidence.
However, Maxim's Vendetti said his talk with Allscripts management today was positive. "We spoke with the company, and we're confident that the new deals will set the stage for strong bookings and revenue growth," Vendetti said.
-- Reported by Eric Rosenbaum in New York.
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