Health Care Winners: Quality Systems - TheStreet

IRVINE, Calif. (

TheStreet

) -- Health care information stocks have been under intense stock pressure of late, and

Quality Systems

(QSII)

made a move to alleviate some of that pressure on Thursday, announcing a deal to acquire Opus Healthcare Solutions.

Quality Systems has been among the leaders of health care information companies moving physician groups to adopt electronic records -- the federal government is promising physician groups $25 billion in reimbursement for the transition.

With health care investors coming around to the idea that the earnings benefit to these health care information companies from the federal stimulus may be gradual across the next three years, the diversification by Quality Systems into an under-served market make sense as part of attempting to diversity earnings potential.

Health care investors

have been keeping these health care stocks, including Quality Systems, on a very short leash in this earnings season, with the pullbacks in stock price -- even after in-line earnings as was the case with Quality System -- leading to double-digit share price declines.

The health care information sector has been largely split between companies focused on the hospital market, such as

Cerner

(CERN) - Get Report

, and companies focused on the physician market, such as Quality Systems. Cerner delivered a strong fourth quarter earnings on Wednesday, bucking the recent trend, but

even the Cerner big earnings did not rally the health care information stocks as a group.

The acquisition of Opus Healthcare allows Quality Systems to target the most under-penetrated of health care markets: community hospitals of less than 100 beds, primarily in rural areas. This is a market that has been the focus on

Computer Programs & Systems

(CPSI) - Get Report

and

Healthland

, a private company owned by venture investor Francisco Partners.

Quality Systems' move into the target market of CPSI and Healthland will certainly alter the competitive landscape in what some analysts view as the market with the largest opportunity for growth -- not in dollar terms, but by percentage growth. There have also been rumors that Healthland will be taken public by Francisco Partners within the next six months. Francisco Partners' officials did not return call about Healthland.

Last week, CPSI reported weak earnings, with costs outpacing sales revenues, and the stock was punished, losing 15% in one day. While CPSI's opportunity in the rural market is still large, with Quality Systems moving onto its turf and a potential IPO from Healthland, the options for playing publicly traded stocks focused on the community hospital market is getting larger.

Still, while Quality Systems said the deal for Opus will be accretive to 2011 earnings, analysts are still cautious on whether now is the time to buy Quality Systems stock. Even after the big plummet in shares of Quality Systems and other health care information companies in January, Stifel Nicolaus analyst Todd Weller, for one, is reserving judgment.

Weller wrote on Thursday morning that the acquisition of Opus -- which follows an acquisition of Sphere Health Systems in August -- represents an aggressive move into the community hospital market, and is an interesting move for QSII.

However, the Stifel Nicolaus analyst remains at a hold on Quality Systems, writing, "We continue to evaluate whether we should be viewing the recent meaningful pullback in QSII shares as an opportunity to become more constructive on the stock. However, we are not there yet."

Shares of Quality Systems were up more than 2% on Thursday morning, while shares of CPSI were down more than 2%. Most of the big health care information stocks, Cerner,

Allscripts-Misys Healthcare Solutions

(MDRX) - Get Report

, and

Eclipsys

( ECLP), were down also, with Eclipsys leading the losses at a 3% decline on Thursday morning.

-- Reported by Eric Rosenbaum in New York.

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