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Why Is Allscripts (MDRX) Down 11.3% Since its Last Earnings Report?

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It has been about a month since the last earnings report for Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) . Shares have lost about 11.3% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MDRX due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Allscripts Healthcare reported fourth-quarter 2017 adjusted earnings of 18 cents per share, in line with the Zacks Consensus Estimate. Adjusted earnings increased 28.6% year over year.

Adjusted revenues grew 27% to $547 million on a year-over-year basis and beat the Zacks Consensus Estimate of $523.4 million.

Solid growth recorded in U.S. Core Solutions and Services, fueled by Sunrise electronic health record platform and Allscripts Revenue Cycle Management Services, buoyed optimism in the fourth quarter.

Segmental Analysis

Software Delivery, Support and Maintenance Revenues

This segment comprises software, hardware, subscription, other transactions, support and maintenance revenues. Revenues in the segment increased 17.1% to $328.7 million year over year.

Client Services Revenues

This segment takes care of recurring managed services and other project-based client services. Client service revenues were up 30.3% on a year-over-year basis to $188.6 million.

Recurring & Non-Recurring Base

Recurring Revenues

Recurring revenues cover subscriptions, recurring transactions, support and maintenance and recurring managed services. Adjusted recurring revenues increased 32% on a year-over-year basis. Notably, the company’s total recurring-revenue mix came in at 79% of net revenues in the fourth quarter.

Non-recurring Revenues

This segment comprises systems sales and other project-based client services. Adjusted non-recurring revenues at the segment increased 11% on a year-over-year basis.

Margin Details

As a percentage of revenues, Allscripts registered adjusted gross margin of 47.8% in the fourth quarter, compared with 48% in the year-ago quarter. Margins contracted 20 basis points (bps). However, management at Allscripts estimates gross margins to improve in 2018 on the back of the synergies from the recent Enterprise Information Solutions acquisition.

Software gross margin, as a percentage of revenues, declined 50 bps on a year-over-year basis.

Client service margin in the fourth quarter came in at 16.7% of net revenues, compared to 14.8% in the same period last year.

Adjusted operating expenses in the quarter totaled $186 million, up 27% year over year, thanks to the acquisition of the Enterprise Information Solutions business from McKesson Corporation (MCK).

Selling, general & administrative expenses increased 15% to $114 million and research and development expenses rose 50% to $105 million on a year-over-year basis.

2018 Outlook

For 2018, Allscripts expects adjusted revenues of in the range of $2.15 billion to $2.25 billion, up 17% to 22% on a year-over-year basis. The Zacks Consensus Estimate for 2018 revenues currently stands at $2.14 billion.

Adjusted EBITDA is expected in the band of $420 million to $460 million, up 12% to 23% year over year.

Adjusted earnings per share are expected between 72 cents and 82 cents, reflecting an increase of 16% to 32% year over year. The Zacks Consensus Estimate for 2018 adjusted earnings is currently pinned at 77 cents.

However, bookings in the fourth quarter totaled $314 million, down 22.7% on a year-over-year basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.

Allscripts Healthcare Solutions, Inc. Price and Consensus

VGM Scores

At this time, MDRX has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for growth investors while also being suitable for those looking for value and to a lesser degree momentum.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, MDRX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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