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Allscripts Gains From Strong Results in Q2, Competition Rife

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On Aug 7, we issued an updated research report on Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) . While the company continues to gain from its strong fundamentals, stiff competition raises concern.

The stock currently carries a Zacks Rank #3 (Hold).

Price Performance

In the past year, shares of Allscripts have rallied 2.9% compared with the industry's gain of 9.2%. The current level is also lower than the S&P 500 index’s return of 16.1%.

Over the last 60 days, the Zacks Consensus Estimate for Allscripts’ current-year earnings per share fell by a penny to 76 cents.

What’s Favoring the Stock?

In the recently reported second quarter, Allscripts’ revenue performance was backed by strong performances by its core Software delivery, Support and Maintenance segment. Notably, this segment reported revenues worth $336.4 million on a reported basis, up 22.3% from the year-ago quarter. Furthermore, growth came on the back of consolidation of McKesson’s (MCK - Free Report) Enterprise Information Solutions (EIS) business.

Areas like Netsmart and Practice Fusion have also contributed to growth. Per management, overall growth at Netsmart continues to be driven by new client wins and expanding services to existing clients. In the ambulatory market, Practice Fusion recorded several subscription sign-ups.

Allscripts recently closed the acquisition of HealthGrid Holding Company (HealthGrid), a mobile enterprise patient engagement platform business. Notably, this buyout represents significant expansion of the Allscripts FollowMyHealth platform portfolio. Additionally, management expects the deal to position Allscripts well in the rapidly growing patient benefit market.

Solid prospects in the Electronic Health Record (EHR) platform buoy optimism. The company is gaining popularity among hospitals and healthcare systems on the back of its Sunrise EHR platform, which is seeing rising demand from new domestic and international clients. Recently, Genesys, part of Ascension, invested in the company’s 2bPrecise solution. Furthermore, Grants Pass, an existing EHR client of the company, adopted Allscripts PM along with revenue cycle management services.

Deterrents

Allscripts saw a 34% year-over-year increase in operating expenses in the second quarter of 2018, which kept the margins pressed. Per management, the increase has been primarily driven by the acquisition of Mckesson’s EIS business and Practice Fusion.

Moreover, bookings fell a significant 31.7% in the second quarter. In fact, management expects to face volatility in bookings in the quarters ahead.

Larger players, such as Epic and Cerner, are expected to have an advantage over smaller competitors in winning stimulus-driven contracts. These companies pose significant rivalry for Allscripts.

Key Picks

A few better-ranked stocks in the broader medical space are Intuitive Surgical (ISRG - Free Report) and Integer Holdings Corporation (ITGR - Free Report) .

Intuitive Surgical’s long-term earnings growth rate is expected at 14.7%. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Integer Holdings has an expected long-term earnings growth rate of 15%. The stock sports a Zacks Rank #1.

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