A day after Elliott Management Corp. revealed a stake in athenahealth (ATHN) , Wall Street firms weighed in on the situation stating their confidence that the activist will be able to get its agenda through.
"Fundamentals remain a concern but the involvement of an activist limits [near term] downside and increases the chances of a sale," wrote Jefferies, Sean Dodge, adding that a sale is not the only outcome Athena could see, though likely.
"We believe the fund may push for a cost reduction program, given ATHN's revenue slow-down and high operating costs," added David Larsen of Leerink Partners LLC in a note Thursday, May 18.
Jefferies upgraded its price target to $135 per share from $95, while Leerink upped its target to $140 per share from $110. Evercor ISI raised its price target to $147 per share following news of the filing.
Athenahealth shares soared on Thursday, May 18, Elliott's Paul Singer launched a campaign at the healthcare technology company urging it to consider "strategic opportunities."
In the filing, Elliott said it believed that athenahealth operates in a "highly strategic area at the intersection of technology and health care with a disruptive value proposition, a leading competitive position and a compelling product set, the value of which is not reflected in the Issuer's current market value."
Watertown, Mass.-based athenahealth is a provider of medical record, revenue cycle, patient engagement, care coordination and population health services.
"[Athena] is now a mature business in a slowing industry. The vast majority of physicians and hospitals in the U.S. have attested to Meaningful Use, and ATHN is facing much stiffer competition from [Cerner (CERN) ] and [Epic Systems Corp.]," wrote Leerink's Larsen, adding that recent comments from CEO Jonathan Bush about getting the company's margins to 20% are unrealistic.
In 2016 the company posted gross margin of 12.2% down from a high of 16.6% in 2011.
"M&A multiples have averaged 4.5x revenue over the last several years-not much higher than ATHN's current 4.3x valuation," according to Jefferies. "A sale is a low probability event but can't be ruled-out given the number of well-capitalized non-HC software companies looking to 'break into' healthcare."
Analysts polled by FactSet project the company to have about $1.2 billion in sales.
Looking at the software landscape, IBM (IBM) and Inuit (INTU) have expressed a desire to break into healthcare while athena's competitor Cerner, which is growing at a much slower pace than athena could take a look. Reports have also speculated that Epic, Aetna (AET) and UnitedHealth (UNH) may also be interested.