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Tags: athenahealth | office support | medical | hosptials

David N. Frazier: My Diagnosis of athenahealth's Stock Outlook

By    |   Wednesday, 05 March 2014 10:12 AM

athenahealth (ATHN) appears to be another of those stocks that seems to have a good story but whose financial operating results and growth prospects don’t justify the company’s stock price.

In case you’re not familiar with athenahealth, the Watertown, Mass.-based company provides back-office support to medical doctors, health clinics and hospitals throughout the United States.

Specifically, the company provides electronic health records, operations management services and medical billing software that helps healthcare entities to improve patient care, reduce work, manage clinical and billing information more efficiently, lower operating costs and maximize profits.

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The company’s primary products and services include the following:

  • athenaClinicals: An electronic health records service that helps healthcare providers to improve their administrative workflow by automating and managing functions related to medical record-management. That service also assists medical groups with the proper handling of physician documentation, laboratory orders, and related inbound and outbound communications to ensure that lab orders are processed quickly and accurately.
  • athenaCollector: An operations management service that helps healthcare providers to manage billing-related functions more efficiently and to collect payments from healthcare insurers on a timely basis.
  • athenaCommunicator: A patient communication service that helps healthcare providers to reduce patient no-show rates and to improve their appointment capacity by providing (1) a self-service online portal for patients to request appointments and (2) an automated system that reminds patients of appointments via automated email messages and phone calls.
  • athenaCoordinator: A healthcare referral service that enables healthcare providers to send pertinent patient information, via an easy-to-use online portal, to medical specialists, hospitals and medical laboratories. Utilizing athenahealth’s Rules Engine, athenaCoordinator determines a patient’s insurance eligibility automatically after a referring provider enters a referral order via the web-based portal.

Unlike similar products and services offered by many of the company’s competitors, athenahealth’s software applications are cloud-based, which means that its users don't need to install, upgrade or maintain expensive computer hardware and software applications.

Instead, the company’s clients need only an internet connection device to access patients’ medical records, manage patient appointments and billings, increase their appointment productivity, and collect payments from health insurers.

Through the company’s Epocrates division, athenahealth provides regularly-updated clinical and prescription drug information, diagnostic tools, and treatment guidelines that enable medical doctors to make informed decisions regarding the treatment and care of their patients — via handheld electronic devices, such as smartphones and tablet computers.

Approximately 50,000 healthcare providers throughout the United States use the company’s athenaCollector service, and more than one million healthcare professionals, including 50 percent of U.S. physicians, use the company’s Epocrates service.

As a result, largely, of the Health Information Technology for Economic and Clinical Health Act (“HITECH”) that was enacted on Feb. 17, 2009, athenahealth’s was able to grow its revenues at very fast rates over each of the past five years.

For those of you who aren’t familiar with HITECH, that act allows healthcare providers who adopt and use electronic health record (“EHR”) services to receive up to $63,750 from the U.S. government.

Medical doctors and hospitals who do not adopt an EHR service by the year 2015 will be penalized 1 percent of their eligible payments from Medicare, with that penalty increasing to 3 percent over the ensuing three years.

In addition to those penalties, HITECH requires healthcare providers to provide patients with timely electronic access to their health information, maintain up-to-date diagnoses of their patients, provide patients’ medical information to other healthcare providers, and send reminders to patients for preventive and follow-up care — to provide many of the services that athenahealth offers.

Although athenahealth grew its annual revenues at rates of between 30 percent and 38 percent from 2009 to 2012, and the company grew its net income by 37 percent and 50 percent during 2010 and 2011, respectively, its net earnings declined by 1.6 percent and 86 percent during 2012 and 2013, respectively.

Those declines resulted, primarily, from substantial increases in the company’s operating expenses due to its acquisition of Epocrates, Inc. and the purchase of a 29-acre, multi-building, commercial property in Massachusetts that it was leasing previously to conduct its operations.

While I expect the Epocrates acquisition to place athenahealth in a position to continue to sell its products and services to a large number of healthcare providers, my research indicates that the company will not be able to grow its revenues and earnings at anywhere near a fast enough pace to justify the recent price of its stock.

Specifically, my research indicates that athenahealth would need to quadruple its earnings per diluted share during the year ending Dec. 31, and during each of the ensuing two years, to justify the price at which the company’s stock closed on Tuesday — at around $204.

In light of the fact that athenahealth grew its net income by only 37 percent and 50 percent during 2010 and 2011, respectively, when it was the only provider of cloud-based electronic medical record services, and that Allscripts Healthcare Solutions (MDRX), CareCloud Corp. and Cerner Corp. (CERN) now offer similar cloud-based services, my experience suggests that the probability for athenahealth to grow its earnings at the rates mentioned above is extremely unrealistic.

Therefore, I encourage investors and speculators alike to stay away from ATHN. A better bet, in my opinion, would be for aggressive stock market speculators to sell ATHN short.

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David N. Frazier has an extensive background in the investment securities industry and has invested in the financial markets for more than 25 years.

In addition to working as a business analyst, merchant banking analyst and equity research analyst, he’s held positions in sales and marketing at institutional investment firms, including William O’Neil & Co., TDAmeritrade, and Merrill Lynch.

David now serves as the President and Chief Market Strategist of Frazier & Mayer Research, LLC (dba www.TheMarketMonk.com), an independent investment research firm that provides research and analytical services to hedge funds, investment advisory firms, and other investment newsletters.

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athenahealth (ATHN) appears to be another of those stocks that seems to have a good story but whose financial operating results and growth prospects don’t justify the company’s stock price.
athenahealth,office support,medical,hosptials
Wednesday, 05 March 2014 10:12 AM
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