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On Sep 10, we maintained our Neutral recommendation on athenahealth Inc. (ATHN - Analyst Report). We are encouraged by the company’s robust utilization trends and rapid strides in capturing the Electronic Health Record (EHR) business of physician practices. However, we are disappointed with its 2013-second quarter results, which missed the Zacks Consensus Estimate on both earnings and revenues fronts.

Why Maintained?

On Jul 18, athenahealth Inc. reported second-quarter 2013 adjusted loss per share of 21 cents in stark contrast to the Zacks Consensus Estimate of earnings of 8 cents and the year-ago earnings of 13 cents. Reported net loss in the quarter was $12.4 million or 34 cents per share compared with the net income of $4.2 million or 12 cents.

Revenues climbed 41% year over year to $146.3 million in the quarter, led by expanded clientele for the company’s offerings and benefits from Epocrates takeover. However, revenues missed the Zacks Consensus Estimate of $148 million

Following the release of second quarter results, the Zacks Consensus Estimate for 2013 went down by a penny or 3% to 33 cents per share. The Zacks Consensus Estimate for 2014 also went down by a couple of cents or 3% to 67 cents. With the Zacks Consensus Estimates for both 2012 and 2013 remaining almost flat, the company now has a Zacks #3 Rank (Hold).

athenahealth’s unique business model makes it a strong niche provider of RCM services (athenaCollector) to small physician practices. Its SaaS-based approach allows for a lower cost and more flexible delivery mechanism that is expected to help ATHN win deals. Further, its EHR product (athenaClinical) is a key player in ambulatory or physician billing.

However, athenahealth’s long-term goal of 30% top-line growth is challenging, given the consolidation trend among small physician practices. Moreover, the company faces strong competition from EHR products of Allscripts Healthcare Solutions (MDRX - Analyst Report) and Cerner Corporation (CERN - Analyst Report).

Other Stocks to Look For

Other stocks that are currently performing well in the same industry where ATHN operates include Medidata Solutions (MDSO - Snapshot Report) with a Zacks Rank #2 (Buy).

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