Allscripts Retained at Neutral

We maintain our Neutral recommendation on Allscripts Healthcare Solutions ( MDRX - Analyst Report ) , a leading player in the health care information technology (HCIT) market. The company reported third quarter adjusted (excluding one-time items other than stock-based compensation expense) earnings per share of 19 cents, beating the Zacks Consensus Estimate by a penny.

Reported net income dipped 50.8% year over year to $9.4 million in the quarter (or 5 cents per share).

Revenues were $360.7 million, down 0.8% year over year in the third quarter, trailing the Zacks Consensus Estimate of $376 million. Adjusted revenues came in at $361 million, down 1.4% on a year-over-year basis.

Backlog was $2.83 billion in the third quarter. Allscripts inked one new Sunrise Clinical Manager agreement in the quarter and also expanded its footprint with other clients.

Bookings in the quarter were $161.9 million, a decrease of 39.3%. Year-over-year decline in bookings was caused by delay in purchase decisions as consumers awaited product launches. Another issue was uncertainty regarding the company’s future autonomy.

Total revenues consisted of System Sales ($35.2 million), Professional Services ($62.7 million), Maintenance ($119.3 million) and Transaction Processing ($143.5 million), which constituted 9.8%, 17.4%, 33.1% and 39.8% respectively, of total revenues in the third quarter.

The health care information technology market is competitive and price sensitive. Among others, Allscripts faces strong competition from Cerner Corp. ( CERN - Analyst Report ) , Quality Systems ( QSII - Analyst Report ) and Athenahealth ( ATHN - Analyst Report ) .

However, optimism about the growth prospects of select HCIT service providers remains high under the Obama administration, which passed a Stimulus package in May 2009. The Stimulus package was aimed at increasing the use of electronic health record (EHR) systems by medical practitioners. While greenfield opportunities have shrunk, the replacement market is growing.

As a potential takeover target, Allscripts presents a lucrative opportunity for firms seeking entry into the HCIT industry. It has a wide user base and enjoys many more opportunities vis-à-vis its peers. Its mergers with Misys and Eclipsys have expanded opportunities and reach in practice management (PM) and in electronic health record (EHR) markets substantially with increased cross-selling opportunities. We believe that Allscripts is well positioned in the fast growing business of selling EHR/EMR to physician practices as well as inpatient settings.

The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.