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On May 27, 2013, we reiterated our Neutral recommendation on Quality Systems Inc. (QSII - Analyst Report) based on its fiscal fourth quarter 2013 (ending Mar 31) earnings results.

Why the Retention?

On May 23, Quality Systems announced its results for the reported quarter. The company reported adjusted earnings per share of 21 cents. It missed the Zacks Consensus Estimate of 28 cents. Adjusted earnings exclude an impairment burden of $17.4 million on goodwill of Hospital Division.

Revenue rose 2% year over year to $111.3 million in the fiscal fourth quarter. The company’s revenues missed the Zacks Consensus Estimate of $118 million.

The pipeline improved slightly to $142 million from $139 million in the sequentially prior quarter. However, margins were negatively impacted by a drop in higher margin software sales. The company has not issued guidance for the current fiscal year.

The Zacks Consensus Estimate for fiscal 2014 has declined by a penny (down 0.8%) to $1.18 over the past week. The Zacks Consensus Estimate for fiscal 2015 has dropped by 2 cents (down 1.5%) to $1.29 during the same timeframe.

Competition is intense from well regarded players such as Athenahealth, Inc. (ATHN - Analyst Report), Cerner Corporation (CERN - Analyst Report) and others. Price discounting is frequent, particularly at the lower end, and Software as a Service (SaaS) based model appears to have exacerbated pricing pressure. While fresh projects have shrunk in number, the replacement market is growing.

Currently, the stock retains a Zacks Rank #4 (Sell). However, we are more positive about other stocks such as Merge Healthcare Incorporated (MRGE - Analyst Report) which carries a Zacks Rank #2 (Buy) and is expected to do well.

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