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Here's Why You Should Retain Allscripts (MDRX) Stock for Now

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Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) is well poised for growth backed by lucrative deals, innovation and strong prospects in Sunrise electronic health record (EHR) platform. However, margin contraction remains a concern.

Shares of Allscripts have gained 30.7% compared with the industry’s growth of 21.7% in the past three months.

The company, with a market capitalization of $1.41 billion, provides IT solutions and services to healthcare organizations. It anticipates earnings improvement of 9% over the next five years. Moreover, it beat estimates in two of the trailing four quarters, average beat being 3.8%.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Lucrative Deals: Recently, Allscripts announced a collaboration with Microsoft focused on implementing an innovative, integrated model for clinical research, aiming to enhance clinical research design, conduct studies more efficiently and improve the research provider and participant experience.

In July 2020, Varian extended its long-standing strategic alliance with Microsoft for five years. The deal will enable expanded development and delivery of cloud-based health IT solutions. In June, the company’s payer and life science business unit Veradigm inked a new partnership with the Patient Access Network (“PAN”) Foundation.

In the second quarter, Allscripts was selected by MicroHealth to shift the U.S. Department of State medical health units to a cloud-based solution for their EHRs. This will be done using Allscripts’ TouchWorks EHR for its patient – and its patient engagement solution FollowMyHealth.

Solid Prospects in Sunrise EHR Platform: We believe that the Sunrise and Paragon EHR platform is a key growth driver for Allscripts. For investors’ notice, Allscripts Sunrise is a fully integrated EHR platform that connects all clinical and financial aspects of a hospital or health system for inpatient, emergency and outpatient care. Through the second quarter of 2020, Northwell has utilized data from Allscripts Sunrise to provide better insights regarding COVID-19 in America. In the United Kingdom, Gloucestershire Hospitals NHS Foundation Trust went live with Sunrise EHR in March. Other than Veradigm, the company’s EHR installed base also includes its CarePort business, an end-to-end platform that bridges acute and post-acute EHRs and provides visibility for providers, payers and ACOs into the care that patients receive across care settings. 

For the second quarter, the company saw 698,000 total telehealth visits from Practice Fusion, up 300% sequentially. Overall, during the second quarter, almost 900,000 telehealth visits were experienced by the entire client base, combining both FollowMyHealth and Practice Fusion.

This platform is expected to continue driving growth in the long term.

What’s Deterring the Stock?

In the second quarter, Allscripts encountered some headwinds. Gross profit in the second quarter was $164.4 million, down 10.7% from the year-ago quarter. Gross margin was 40.5%, down 94 basis points (bps) from the year-ago figure.Adjusted operating profit in the reported quarter was $2 million, down 89.4%. Adjusted operating margin was 0.4%, a contraction of 300 bps.

Which Way Are Estimates Headed?

For 2020, the Zacks Consensus Estimate for revenues is pegged at $1.69 billion, indicating a decline of 4.9% from the prior-year period. The same for earnings stands at 67 cents per share, suggesting no movement from the year-ago reported figure.

Key Picks

A few better-ranked stocks from the broader medical space include OPKO Health (OPK - Free Report) , Surmodics (SRDX - Free Report)  and Merit Medical Systems (MMSI - Free Report) .

OPKO Health’s long-term earnings growth rate is estimated at 12%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is estimated at 10%. The company presently carries a Zacks Rank #2.

Merit Medical Systems’ long-term earnings growth rate is estimated at 11.9%. It currently carries a Zacks Rank #2.

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