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On Feb 19, Zacks Investment Research downgraded Quality Systems (QSII - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On Jan 23, Quality Systems reported disappointing third-quarter fiscal 2014 (ended Dec 31, 2013) results. The company’s earnings plunged roughly 64% to $6,024 million or 10 cents per share from $16,903 million or 28 cents recorded in the third quarter of fiscal 2013. The significant decline was attributable to lower revenues and considerably higher cost of sales. Earnings per share also lagged the Zacks Consensus Estimate by 11 cents.

Revenues in the reported quarter declined 5% to $108.8 million due to a fall in Systems sales, partly offset by an increase in services, maintenance, RCM, ADI, and other services revenues. The top line also missed the Zacks Consensus Estimate of $114 million.

The significant fall in the gross margin is also a serious cause of concern for Quality Systems. Moreover, the upcoming healthcare reform measures are also expected to act as potential headwinds threatening growth prospects of Quality Systems going forward.

Moreover, Quality System operates in a highly competitive healthcare information systems and services market, where larger players like Cerner Corporation (CERN - Analyst Report), through stronger resources, can capitalize upon opportunities at their disposal and eventually garner greater market share. This can be an imminent threat for Quality Systems' revenues going ahead.

Quality Systems witnessed downward estimate revisions following the announcement of its third-quarter results. Two estimates moved down in the past 30 days, while no upward revision was witnessed over the same time span.

The current Zacks Consensus Estimate for earnings for 2014 stands at 77 cents per share, down 4.9% over the last 30 days. The Zacks Consensus Estimate for revenues is currently pegged at $443 million for 2014.

Other Stocks To Consider

Investors interested in the medical information systems industry can also look at other stocks like Computer Programs & Systems Inc. (CPSI - Snapshot Report) and Omnicell, Inc. (OMCL - Analyst Report). While CPSI carries a Zacks Rank #1 (Strong Buy), OMCL holds a Zacks Rank #2 (Buy).
 

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