Unlike other businesses, the initial phase of COVID-19 proved to be beneficial for the Medical Information industry that advanced on growing demand for digital healthcare support to control the spreading of the infection. This created unique opportunities for heavyweights within the industry like Cerner (CERN - Free Report) whose AI-enabled workflow started to get huge industry acceptance.
However, the pandemic put a brake on the flow of seamless R&D operations within this sector. Also, a gloomy second-quarter performance, along with many of the industry players’ apprehension about a ‘new great depression’ approaching has resulted in significant bearishness. The frontrunners in the industry are 10x Genomics Inc. (TXG - Free Report) , Allscripts Healthcare (MDRX - Free Report) and NextGen Healthcare (NXGN - Free Report) .
About the Industry
The Zacks Medical Info Systems industry comprises companies, which develop and market healthcare information systems. They offer software and hardware solutions to healthcare providers with secure access to real-time clinical, administrative and financial data in a time-efficient manner. Over the past few years, this digital health sector has evolved greatly to meet the changing needs of healthcare providers.
Focus on patient satisfaction and security of patient data, and increasing administrative costs have increased the need for big data, 3D printing, blockchain and AI. These technologies are currently shaping the MedTech space.
The industry players are raking in billions from the sale of proprietary software and related hardware, professional services and IT outsourcing services. Recurring service contracts for software maintenance and certain transaction processing services also contribute to revenues. A major player in this industry is Cerner, a healthcare information technology (HCIT) solutions provider.
4 Trends Shaping the Future of the Medical Information Industry
Growing Demand for Contactless Services: Over the past pandemic months, with contactless services being the buzzword, medical information system companies have witnessed a relatively positive impact on their businesses than the rest. According to many industry players, this crisis significantly highlighted the need for healthcare organizations to invest in data and analytics. Going by a Dataquest report, 34% of the digital health companies expect the pandemic to have a positive impact on their business and 53% of the industry players believe that this will bring about a significant improvement in patient acceptance of digital solutions. This sector has also been witnessing growing demand for telemedicine-focused digital medical services, remote monitoring and self-testing solutions.
Lower Product Booking Impacts Performance: The medical information industry players are currently witnessing significantly lower product bookings as well as slowdown in purchasing decisions by hospitals. The pandemic impacted the majority of these players’ second-quarter results. As elective surgeries have been postponed with hospital systems ramping up to treat COVID-19 patients, these companies are having difficulty engaging with customers on new bookings. Also some implementations from backlog have been delayed as hospitals were consumed with treating COVID-19 patients or were preparing for a potential surge in COVID-19 patient hospital admissions. Further, worldwide sales and supply disruption has put many smaller players’ businesses at stake. Many of them are currently unable to properly access credit or equity funding. If the situation persists, it can lead to systemic risk, which will gradually cascade through the entire economy.
EMR and Blockchain Gain Ground: Among the long-term trends, EHRs, electronic medical records (EMR), predictive analytics and real-time alerting have been gaining prominence in the U.S. MedTech space. This has led to the emergence of Internet of Medical Things (IoMT), which has enabled the use of a number of wearables, including ECG and EKG monitors, apart from other common medical measurement devices to determine temperature, glucose level, and blood pressure readings. Evolution in telemedicine is another mega trend worth mentioning here. We should also mention about blockchain technology, a new method of storing the same amount of digital information in a way that it takes up less space. In fact, leading healthcare companies like Humana, MultiPlan, Quest Diagnostics (DGX - Free Report) and UnitedHealth Group’s Optum and UnitedHealthcare formed an alliance to launch Synaptic Health Alliance pilot project on blockchain technology. Aetna, a CVS Health business, and Ascension have also joined this program.
Rising Instances of Cyber Attacks: As healthcare becomes more wired and interconnected, cybersecurity is the primary concern of hospitals. In fact, security flaws are being increasingly found in electronic medical device operating systems or other devices like ECG machines, imaging scanners, infusion pumps and telemetry systems. Indeed, the pandemic has led to growing cyber dependency, which has made the space vulnerable to cyber-attacks. Interpole’s recent report claims that cybercriminals are particularly targeting hospitals, medical centers and public institutions for ransomware attacks as these institutions are already entangled in a healthcare crisis and cannot afford to be locked out of their systems.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Medical Info Systems industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #184, which places it in the bottom 27% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms S&P 500, Sector
The industry has outperformed both the Zacks S&P 500 composite and the sector over the past year.
The industry has gained 27.7%, comparing favorably with the S&P 500’s 12% rise. It also remained above the Zacks Medical sector’s rise of 6.4%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 66.96X compared with the S&P 500’s 21.15X and the sector’s 21.41X.
Over the last five years, the sector has traded as high as 22.71X, as low as 15.81X, and at the median of 18.81X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Medical Info Systems Stocks Likely to Keep Moving Higher
NextGen Healthcare: This healthcare information systems provider offers software that helps in automating and streamlining administrative functions required for operating a medical, dental or hospital practice.
Through the fiscal first half of 2020, the company continued to demonstrate the strength of its NextGen integrated ambulatory platform. In August, the company announced that Virginia Cardiovascular Specialists (VCS), the largest private cardiology practice in Central Virginia, deployed NextGen Virtual Visits to expand the scope of care and treatment offered to patients for non-urgent visits that were disrupted by COVID-19.
The company currently holds a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2021 earnings indicates year-over-year increase of 8.9%. The company delivered average earnings surprise of 39.5% in the trailing four quarters. Over the past six months, the stock has gained 66.9%, comparing favorably with the industry’s 59.5% rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: NXGN
10x Genomics Inc.:This life science technology company, develops and sells instruments, consumables, and software for analyzing biological systems in North America, Europe, the Middle East, Africa, China, and the Asia Pacific. Despite the pandemic hurdles that have resulted in widespread customer lab closures, 10x Genomics is witnessing growing demand for its instruments, particularly driven by COVID-19-related research, which often required placing the Chromium controller in a biosafety lab. The company is also optimistic about the fact that the research into the biology of COVID-19 and other infectious diseases enabled by these instruments is to likely aid in the future.
The company currently holds a Zacks Rank of 2. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year increase of 80.3%. Over the past six months, the stock has gained 125%.
Price and Consensus: TXG
Allscripts Healthcare: This healthcare IT solutions and services provider primarily derives revenues from the sale of its proprietary software and related hardware, professional services and IT outsourcing services. Even amid the pandemic, the company has been maintaining momentum in its Provider business on the back of key client wins. It is confident about its near and long-term outlook as it expects to benefit from a number of differentiated opportunities in its Provider and Veradigm businesses. During this uncertain period, Allscripts manages to leverage both new and existing innovative solutions to help clients and boost patient outcomes.
The company carries a Zacks Rank of 3 (Hold), at present. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year growth of 14.4%. Over the past six months, the stock has gained 66.9%.
Price and Consensus: MDRX