Zacks_Analysts' Blog : Allscripts to Outperform - Analyst Blog

We upgrade our rating on Allscripts (MDRX) to Outperform. Its third quarter earnings per share of 21 cents a share beat the Zacks Consensus Estimate by a penny. Revenues (as reported) of $368.8 million were ahead of the Zacks Consensus Estimate of $364 million.

Allscripts continues to benefit from the financial incentive program for medical providers for complying with federal Electronic Health Record (“EHR”) requirements. The size of the opportunity is large and penetration still low. The company’s bookings are expected to remain strong with plenty of greenfield opportunities. Allscripts is expected to benefit from the incumbency factor. Since incumbency is deemed to be the most significant competitive advantage, we believe the company will continue to be a good performer.

The company is in a solid position to benefit from an under-penetrated, but rapidly growing segment of the healthcare information technology space. It is estimated that the sizeable ambulatory care market is only about 30% penetrated for EHR. We believe that Allscripts is likely to garner a healthy share of the upcoming surge in EHR adoption.   

Allscripts has widened its user-base, after its mergers with Misys and Eclipsys, and increased cross-selling opportunities. While it was a leader on the ambulatory side, the company inherited Eclipsys’ expertise with acute care (inpatient) EHRs. The acquisition of Eclipsys provides the company with an acute care product for sale in concert with its ambulatory services. Thus, Allscripts’ new multi-billion dollar addressable market is the market segment seeking a composite solution across both physician and hospital practices.

However, Allscripts’ ability to integrate large acquisitions remains to be proven. Competition and price elasticity pose problems. Some competitors, such as Cerner (CERN), have long ago developed seamless products serving both inpatient and outpatient segments. These players compete against Allscripts with a simpler rationale for their products. Our recommendation on Allscripts is supported by a short-term Zacks #2 Rank (Buy).