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Here's Why You Should Retain Change Healthcare (CHNG) Stock

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Change Healthcare Inc. (CHNG - Free Report) is well-poised for growth backed by strength in artificial intelligence (AI) and machine learning (ML) efforts, and a robust payment accuracy business. However, stiff competition remains a concern.

Shares of the Zacks Rank #3 (Hold) company have gained 14.4% against the industry’s decline of 40.6% in a year’s time. Meanwhile, the S&P 500 Index has rallied 29.8%.

Change Healthcare — with a market capitalization of $6.42 billion — is an independent healthcare technology platform offering data and analytics-driven solutions to boost clinical financial and patient engagement outcomes in the United States. It anticipates earnings to improve 13% over the next five years. The company has a trailing four-quarter earnings surprise 4.7%, on average.

Key Catalysts

Change Healthcare has been utilizing AI and ML to detect inefficiencies and eliminate them from administrative processes in the healthcare system, thereby lowering costs and helping payers, providers and patients with better outcomes.

During the fiscal second quarter of 2022, the company tripled its application programming interface (API)-related transaction volume on a year-over-year basis. Change Healthcare added 118 new products to its marketplace this quarter, thereby taking the total to 198 APIs software and hardware products from its portfolio available in the company’s marketplace and other storefronts such as the AWS and Microsoft Azure marketplace. The transaction volume continues to grow, thereby instilling optimism in the stock.

Zacks Investment ResearchImage Source: Zacks Investment Research

During the fiscal second-quarter 2022 earnings call, the company launched Change Healthcare Stratus Imaging PACS — a new all-inclusive cloud-native solution. This new solution is currently in production with standalone radiology groups with contracts to deploy in hospital-affiliated practices in 2022. Change Healthcare experienced sustained momentum with its electronic prior authorization offering that utilizes AI and predictive analytics to automate the prior authorization process and drive transparency between healthcare constituents to aid the industry in offering the right care at the right place and time in a transparent manner.

With respect to Payment Accuracy business, the company is committed toward healthcare plans and payers generating double-digit growth for the same. The company’s end-to-end solution helps drive accuracy early in the payment cycle, thus lowering administrative costs and reducing friction.

Per the fiscal second-quarter 2022 earnings call, Change Healthcare shifted a premier payer customers’ primary editing over to its cloud solution and is currently surrounding the primary editing with its complementary capabilities in secondary editing.

Factor Hurting the Stock

The market for healthcare information technology (HCIT) solutions, devices and services is extremely competitive and rapidly evolving. Consequently, intense competition can weigh on the company’s pricing and margins.

Estimates Trend

The Zacks Consensus Estimate for fiscal third-quarter 2022 revenues is pegged at $853.8 million, suggesting growth of 8.7% from the year-ago reported number. Meanwhile, the same for earnings stands at 37 cents, indicating an improvement of 8.8% from the prior-year quarter.

Stocks to Consider

Some better-ranked stocks in the broader medical space include Thermo Fisher Scientific Inc. (TMO - Free Report) , McKesson Corporation (MCK - Free Report) and NextGen Healthcare, Inc. (NXGN - Free Report) .

Thermo Fisher surpassed earnings estimates in each of the trailing four quarters, the average surprise being 9.02%. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 14%. The company’s earnings yield of 3.7% compares favorably with the industry’s (3.6%).

McKesson beat earnings estimates in each of the trailing four quarters, the average surprise being 19.9%. The company currently carries a Zacks Rank #1.

McKesson’s long-term earnings growth rate is estimated at 8.9%. The company’s earnings yield of 9.9% compares favorably with the industry’s 3.2%.

NextGen Healthcare surpassed earnings estimates in each of the trailing four quarters, the average surprise being 16%. The company currently carries a Zacks Rank of 2.

NextGen Healthcare’s long-term earnings growth rate is estimated at 8.5%. The company’s earnings yield of 5.9% compares favorably with the industry’s (4.1%).