Emageon Needs to Execute

We lowered our FY08 revenue and EPS estimates on Emageon, Inc. (EMAG) to within the initial guidance and initiated FY09 estimates. Guidance now only reflects organic growth. EMAG is now operating in a mature large hospital PACS market. To help offset this slower growth, EMAG launched in Q207 its new RadSuite Express solution into the small hospital PACS market.

The company is also making necessary R&D investment to compete successfully in the replacement market. At its current price of $1.99 per share, EMAG is trading at 0.5x our current fiscal year revenue estimate of $88 million, which is at a discount to the 1.5x group average multiple, 2.1x industry mean multiple, and 1.8 industry median multiple. We believe at this stage most of EMAG’s declining sales bookings and revenue expectations have been factored into the stock price.

In a mature large hospital PACS market, EMAG needs to execute on initiatives to compete successfully in the replacement market and complete suitable acquisitions to resume a strong growth rate. We believe the stock is appropriately valued at a price-to-revenue multiple that is at a discount to the group average and industry mean and median. Our price target moves to $2.25. Our price target is based on a price-to-revenue multiple of roughly 0.6x FY08 revenue estimate.

Read the full analyst report on EMAG.

Read the full analyst report on EMAG