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Shares of Athenahealth, Inc. (ATHN - Analyst Report) hit a new 52-week high of $99.79, before closing on Friday, Mar 18 at $97.82. The share price of this leading provider of Electronic Health Care (EHR) solutions for ambulatory care and hospital settings has been on an upward trend since it reported fourth quarter 2012 results on Feb 7.

Drivers that Triggered Momentum

A positive fourth quarter earnings surprise and improved business prospects following the acquisition of Epocrates facilitated the shares of Athenahealth to gather momentum and achieve a new high.   

Athenahealth reported fourth quarter adjusted earnings per share of 18 cents beating the Zacks Consensus Estimate of 16 cents. Reported net income in the fourth quarter increased 11.5% year over year to $5.9 million (or 16 cents per share).

Athenahealth revealed, earlier in Mar, that it accomplished the takeover of Epocrates, a pioneer of mobile health workflows and point-of-care (POC) health apps. The composite company is well placed to bring to market fresh mobile workflows to meet the data requirements of clinicians. Furthermore, Athenahealth’s provider network of 40,000 now encompasses over a million clinicians from the Epocrates set up.

Following several prominent client wins, Athenahealth is better positioned to win deals in the enterprise segment.

On the negative side, the Stimulus which promoted EHR is gradually being withdrawn. While greenfield opportunities are shrinking, the replacement market is nonetheless growing.   

Stock’s Key Indicators

Athenahealth is more expensive than its peer group as per most metrics such as forward P/E, price-to-sales ratio and price-to-book ratio. However, given the company’s higher long-term growth rate of 25% versus the peer group at 19.1%, the premium valuation may well be justified.

About the Company

Athenahealth’s web-based deployment provides a low-cost scalable service while its flexible rules engine leads to higher efficiency in claims settlement. The Software-as-a-Service (SaaS)-based approach allows for a more flexible delivery mechanism that helps Athenahealth win deals. The company has traditionally enjoyed high customer satisfaction rates, which facilitates a larger number of referrals.

Athenahealth’s unique business model makes it a strong provider of RCM services (athenaCollector) designed for small physician practices. Its EHR product (athenaClinicals) is a key player in ambulatory settings. We believe that sales of athenaClinicals are likely to remain robust. In addition, the company will harness its newer products, namely athenaCommunicator and athenaCoordinator.

Athenahealth should benefit from its extensive athenaCollector client base, as only a minority of its subscriber base also utilizes athenaClinicals. Cross selling represents a real growth opportunity in the near term. In this regard, Athenahealth has made rapid strides in capturing the EHR business of physician practices. However, this segment is shrinking, as hospitals increasingly absorb physician’s medical practices. Competition is intense with established players such as Cerner Corporation (CERN - Analyst Report) and Allscripts Healthcare Solutions, Inc. (MDRX - Analyst Report).

The company has a Zacks Rank #3 (Hold). We are more positive about Merge Healthcare Incorporated (MRGE - Analyst Report), which carries a Zacks Rank #2 (Buy) and is expected to do well.
 

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