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Quality Systems Professional Service a Drag, Competition Rife

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On Aug 21, we issued an updated research report on Irvine, CA-based Quality Systems Inc. , a leading developer and marketer of healthcare information systems. The stock currently carries a Zacks Rank #4 (Sell).

Quality Systems had an unimpressive run on the bourse over the last one month, trading below the industry in terms of price performance. A glimpse at the price movement reveals that Quality Systems’ shares have lost 9.6%, comparing unfavorably with the industry’s 3.0% decline.

Quality Systems posted a stellar first quarter of fiscal 2018, beating the Zacks Consensus Estimate for both the counts. However, the quarter witnessed lower professional service sales, which fell almost 13.4% year over year. This was primarily because of tough comparisons with the year-earlier quarter and an unimpressive performance by the new software platform in recent quarters.

We are particularly upbeat about the solid performance by the company’s total software, hardware and related segments. However, growth at the segment was partially offset by lower software license and hardware sales.

Among other concerns, a sluggish global economy, intensifying competition and a strict regulatory environment are primary headwinds. Although a recurring revenue stream is a positive for Quality Systems, it mostly comes from lower margin Electronic data interchange (EDI) and Revenue Cycle Management (RCM) services.

Quality Systems continues to acquire businesses that improve its revenue opportunities and aggravate integration risks. The company’s frequent acquisitions can impact its balance sheet as well as overall organic growth. This may limit Quality Systems’ expansion plans and worsen its risk profile.

On a positive note, Quality Systems continues to focus on growing its presence in the RCM, population health and interoperability solution markets, which is expected to drive dividends in the coming quarters.

Key Picks

A few better-ranked medical stocks are IDEXX Laboratories, Inc. (IDXX - Free Report) , Lantheus Holdings, Inc. (LNTH - Free Report) and Align Technology, Inc. (ALGN - Free Report) . While Align Technology sports a Zacks Rank #1 (Strong Buy), Lantheus Holdings and IDEXX Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained around 6.8% over the last six months.

Lantheus Holdings has a long-term expected earnings growth rate of 12.5%. The stock has surged 70.4% over the last six months.

Align Technology has a long-term expected earnings growth rate of 26.6%. The stock has rallied roughly 22.3% over the last three months.

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