On Jun 20, 2014, we issued an updated research report on
Merge Healthcare Incorporated
). Merge recently posted yet another weak quarter with revenues
trailing the Zacks Consensus Estimate.
Merge posted a mixed quarter with adjusted earnings per
share of 3 cents, rebounding from the 3 cents per share of
loss incurred in the year-ago quarter. Pro forma revenues declined
19.9% to $51.1 million lagging the Zacks Consensus Estimate of $52
Widening loss over the past few quarters remains a major cause
of concern. We remain wary about declining Medicare reimbursement
for advanced medical imaging that could negatively affect hospital
and imaging clinic revenues, thereby reducing demand for
imaging-related software and services offered by Merge.
Moreover, the company's growth prospect is highly dependent on
capital investments by hospitals for advanced imaging solutions,
which are in turn tied to general economic conditions. Per
management, the tough capital spending environment in the hospital
space was mainly to be blamed for the first-quarter debacle.
However, we are encouraged by the fact that the
subscription-based model is gaining traction as reflected in the
healthy growth of subscription backlog. Over the past few quarters,
the company's financial results clearly indicate a shift to the
It is also commendable that despite the general slowdown in
hospital spending, low demand for imaging equipment and related
technology due to global credit crisis and macroeconomic factors,
Merge witnessed client wins and bookings growth. We believe the
company has immense potential in the diagnostic imaging market,
especially with the government emphasis on Healthcare IT and
demographic tailwind. We believe that Merge is well positioned to
take advantage of this opportunity over the long term.
Merge currently carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Investors interested in the broader medical sector can consider
Gilead Sciences Inc.
Osiris Therapeutics, Inc.
). All the three stocks carry a Zacks Rank #1 (Strong Buy).
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