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3 Medical Info Systems Stocks Braving Industry-wide Headwinds

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The past three years of health crisis have led to exponential growth in the Medical Info Systems industry, thanks to the growing demand for contactless services. Even though the severity of the COVID-19 crisis has declined over time, the growing demand for a distant treatment option and a paperless environment has led to a tremendous upsurge in the need for digital healthcare options. Going by Precedence Research data as published by Binariks, the global market for healthcare information systems was worth $287.8 billion in 2022 and is projected to double in size by 2030. Subsequently, 80% of health systems claimed to have plans to increase their investment levels in digital health over the next five years (a HIMSS report).

The growing demand for all kinds of digital healthcare support, including telehealth, cloud computing, artificial intelligence, robotics and analytics, has created a unique opportunity for companies like 10x Genomics (TXG - Free Report) , NextGen Healthcare and Health Catalyst (HCAT - Free Report) . However, with the continued opening up of the global economy despite COVID waves, this trend might get disrupted going forward.

Industry Description

The Zacks Medical Info Systems industry comprises companies, which develop and market healthcare information systems. These companies offer software and hardware solutions to healthcare providers with secure access to real-time clinical, administrative and financial data in a time-efficient manner. Focus on patient satisfaction, security of patient data and administrative cost control has increased the need for big data, 3D printing, blockchain and AI. Industry players like Omnicell and Allscripts are raking in millions from the sale of software and related hardware, professional services and IT outsourcing services, recurring service contracts for software maintenance, and transaction processing services.

4 Trends Shaping the Future of the Medical Information Industry

Growing Demand for Contactless Services: Amid the pandemic, the need for contactless services has grown enormously. Within the medical information systems space, the telehealth and remote patient monitoring segments are particularly growing at a fast rate. Going by a Forbes article of 2022, telehealth is likely to stay for long, beyond the pandemic and will likely be embedded into the healthcare vernacular and become an everyday part of treating patients. Per a Markets and Markets report, the global remote patient monitoring market is projected to reach $117.1 billion by 2025 from $23.2 billion in 2020, seeing a CAGR of 38.2% between 2020 and 2025.

Subsiding COVID-19 Cases Might Disrupt the Trend: While COVID-19 has introduced an all-new era of virtual healthcare service, it has also brought in associated pitfalls. A Wall Street Journal report says that major insurers have been rolling back the terms of this virtual care coverage, upon which customers are facing out-of-pocket charges on certain virtual visits. Adding to the complication, thanks to the successful vaccination drives globally, the severity of COVID-19 has lessened despite the emergence of more infectious variants. Accordingly, despite a rise in case count over the past few months, social restrictions have been lifted to a significant extent. This has led to a rise in the number of physician office and hospital visits with a significant reduction in demand for virtual physician appointments. Going by a Healthcare Finance report, insurers are currently wondering how virtual care will look and what it will be like when the pandemic is finally in the rearview mirror.

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. These have led to the emergence of the Internet of Medical Things, 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. The evolution of telemedicine and blockchain is another megatrend worth mentioning here. Leading healthcare companies like Humana, MultiPlan, Quest Diagnostics and UnitedHealth Group’s Optum and UnitedHealthcare formed an alliance to launch the Synaptic Health Alliance pilot project on blockchain.

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.

Zacks Industry Rank

The Zacks Medical Info Systems industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #157, which places it in the bottom 37% 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 bright 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 Underperforms S&P 500 and Sector

The industry has underperformed the Zacks S&P 500 composite as well as the sector over the past year.

The industry has declined 42.1% compared with the Zacks Medical sector’s decline of 11.6% and the S&P 500’s drop of 15.7% in the said time frame.

One Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month price-to-sales (P/S), which is commonly used for valuing medical stocks, the industry is currently trading at 2.43X compared with the S&P 500’s 3.49X and the sector’s 2.44X.

Over the last five years, the sector has traded as high as 21.73X, as low as 1.64X, and at the median of 3.71X, as the charts below show.

Price-to-Sales Forward Twelve Months (F12M)

Price-to-Sales Forward Twelve Months (F12M)

3 Medical Info Systems Stocks to Watch

10x Genomics: 10x Genomics is a life science technology company developing products for advanced healthcare. The company's integrated solutions include instruments, consumables and software for analyzing biological systems at a resolution and scale that matches the complexity of biology. The company's patent portfolio comprises more than 1,700 patents and patent applications. Among recent developments, 10x Genomics has demonstrated compatibility with two long-read sequencing partners to open up powerful new single-cell and spatial applications using full-length transcripts.

10x Genomics currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2023 revenues indicates a 21.3% improvement from 2022. In the past six months, the stock has improved 22.2% against the industry’s 15.1% decline.

Price and Consensus: TXG

 

NextGen Healthcare: Headquartered in Irvine, CA, NextGen Healthcare is a developer and marketer of healthcare information systems. NextGen offers software that helps in automating and streamlining administrative functions required for operating a medical, dental or hospital practice. Based on the popularity of the Revenue Cycle Management solution, the company plans to expand into dental and hospital markets, which will further drive top-line growth in our view.

NextGen currently holds a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2023 revenues indicates 6.9% growth over fiscal 2022. In the past six months, the stock has gained 2.4%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: NXGN

 

Health Catalyst: Health Catalyst is a leading provider of data and analytics technology and services to healthcare organizations. Health Catalyst’s more than 500 clients leverage the cloud-based data platform or its other software applications — powered by data from over 100 million patient records and encompassing trillions of facts — as well as its analytics software and professional services expertise to make data-informed decisions and realize measurable clinical, financial, and operational improvements.

Health Catalyst carries a Zacks Rank #3 (Hold) at present. The Zacks Consensus Estimate for 2022 sales indicates year-over-year growth of 8.3%. Over the past six months, the stock has declined 20.9%.

Price and Consensus: HCAT



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