Allscripts (MDRX) is a leading provider of electronic record-keeping and practice management systems to doctors, hospitals, and various other health care providers.
After a prolonged fainting spell, the company is now getting the right treatment for a robust recovery, and we�re adding it to Small-Cap Portfolio.
The company struggled last year attempting to integrate products from a big acquisition, while customers balked at making purchases ahead of expected rollouts of new products and product upgrades.
Analysts cut their earnings expectations, and the shares dropped some 50 percent. But now a turnaround is well underway.
Allscripts had considered several options to maximize shareholder value, including shopping itself to private equity firms. In the end, though, after management and boardroom shake-ups, it remained a public entity, with greatly improved prospects.
One significant change was the installation of a new and capable CEO, Paul Black, former chief operating officer of rival healthcare software company Cerner, which grew rapidly under his tenure. Black�s hiring was the latest in a string of management changes that have brightened the company�s outlook.
Earlier, the chairman of the board was ousted and three other board members resigned in protest. Allscripts� chief financial officer and other executives likewise resigned.
With the turmoil resolved, the company is focusing on growing the business again. It�s notable that over the past year, Allscripts did not lose a single major customer. That�s important since nearly two-thirds of revenue comes from recurring sources.
Now the company has begun to introduce new products incorporating technology applicable to a range of healthcare organizations. This should help drive new and recurring sales going forward.
One particular area for growth is small medical practices. Currently only about two-thirds of family doctors use electronic record-keeping. That figure should grow substantially.
To speed the rollout of e-records, the Obama administration has put in place generous incentives that eventually will be replaced by penalties for providers that do not adopt electronic record-keeping.
International sales are another potential growth area, since currently Allscripts generates nearly all of its sales and profits in the U.S. According to one recent survey, spending on information technology is the top priority for European hospitals. Allscripts stands to capture a decent share of that market.
This year, we expect Allscripts to earn around 80 cents a share (up 13 percent from 2012), with profit growth averaging 15 percent a year over the next five years.
The shares trade at a substantial discount both to competitors� valuations and to expected growth. If the new management team rights the ship, as we expect, look for that valuation gap to narrow, resulting in a healthy gain for the stock. MDRX is a buy up to $12.
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