Merge Healthcare Stays a Sell

We continue to rate Merge Healthcare (MRGE - Analyst Report) a Sell. The slowdown in the medical imaging sector is negatively impacting MRGE’s sales.

In Q208, the company received a much-needed cash injection of $20 million. While this lifeline -- combined with slashing costs to anemic levels -- gives management some short-term breathing room, we believe it may lead to lower sales when combined with the weak economy, which may make the current profitability short-lived. Eventually, the company may have to spend more money to grow. Additional cash infusions may be difficult to locate.

We note the 2007 annual report's "going concern" qualification and remain cautious despite one positive quarter. Since then, the company replaced its independent auditors. The industry average revenue multiple for 2009 is approximately 1.4x. We think that the company should trade at 50% discount to the industry, which equates us to a price of approximately $0.68.

Rajarshi Maulik contributed to the report.

Read the full analyst report on MRGE