NextGen Healthcare, Inc. is well poised for growth backed by growing RCM (Revenue Cycle Management) and electronic health record (EHR) markets, and solid recurring revenue base. However, intense competition in the healthcare information technology market remains a concern.  

Shares of NextGen Healthcare have gained 24.9%, compared with the industry’s growth of 14.5% in the past three months. Meanwhile, the S&P 500 Index has rallied 16% in the same timeframe.

The company, with a market capitalization of $767.2 million, is a developer and marketer of healthcare information systems. It anticipates earnings to improve 6% over the next five years. Moreover, it has beat estimates in each of the trailing four quarters by 1.2%, on average.

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

What’s Deterring the Stock?

The company operates in the intensely competitive healthcare information technology (HCIT) market, which in turn increases pricing pressure.
Further, the company has been witnessing margin pressure for a considerable period of time and the trend is likely to persist in the near term. In fact, the gross margin in the fiscal fourth quarter was 49.9%, down 400 bps.

What’s Favoring the Stock?

Being a major player in the U.S. RCM space, the company continues to benefit from this market. The global RCM market is anticipated to reach $73.2 billion by 2026 witnessing a CAGR of 12.0%.

Given the popularity of the RCM solution, the company intends to expand into dental and hospital markets. This, in turn, will drive the top line.

With EHR services gaining prominence in the U.S. MedTech space, the company is expected to gain from the growing global EHR market.

According to Transparency Market Research, the global EHR market is estimated to reach $38.29 billion by 2025 at a CAGR of 5.7%. Further, reports indicate that MedTech companies with significant exposure to big data automated EHRs will excel with respect to operations and margins.

Moreover, solid recurring revenue base has been a key catalyst. In fourth-quarter fiscal 2020, total recurring revenues amounted to $124.5 million, up 3.6% from the year-ago quarter, and accounted for 91.3% of total revenues. Per management, the improvement is headed in the right direction and enhances the company’s future growth curve.

Which Way Are Estimates Headed?

For fiscal 2021, the Zacks Consensus Estimate for revenues is pegged at $519.8 million, indicating a decline of 3.8% from the prior-year period. The same for earnings stands at 67cents per share, suggesting a fall of 19.3% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include Aphria Inc. , HMS Holdings Corp. and West Pharmaceutical Services, Inc. (WST Quick QuoteWST - Free Report) . While Aphria and HMS Holdings carry a Zacks Rank #2 (Buy), West Pharmaceutical sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Aphria has an estimated long-term earnings growth rate of 24.6%.

HMS Holdings has an estimated long-term earnings growth rate of 11%.

West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.

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