On Jan 31, 2013, we retained
), a provider of electronic health records in the ambulatory and
inpatient settings, at Neutral after the company missed Zacks
Consensus Estimates for both revenues and earnings for the fiscal
third quarter 2013.
Why the Retention?
Quality Systems reported, on Jan 24, third quarter fiscal 2013
(ended December 31) adjusted earnings per share of 26 cents,
which missed the Zacks Consensus Estimate of 28 cents. Net income
in the fiscal third quarter was $15.6 million, down 26% on a
year-over-year basis, primarily due to lower high-margin software
sales. Revenues increased 2% year over year to $114.5 million in
the fiscal third quarter, which missed the Zacks Consensus
Estimate of $119 million.
Over the last 30 days, the Zacks Consensus Estimate for fiscal
2013 has dropped 1.8% to $1.10. Moreover, the Zacks Consensus
Estimate for fiscal 2014 has declined 2.4% to $1.23 during the
Quality Systems runs a pure-play business model in an
attractive industry with a large number of catalysts, which
provoke frequent speculation about mergers and acquisitions. On
the positive side, we observe the high proportion of recurring
revenues. Of late, the company's pipeline metric has roughly
stabilized on a sequential basis.
The company has made multiple acquisitions to bolster organic
growth. Its acquisitions are expected to facilitate its entry in
the small hospital segment. We are concerned about execution risk
emanating from Quality Systems' entry into the rural inpatient
market. Further Quality Systems faces strong competition from
low-cost cloud-based competitors such as
Quality Systems has traditionally focused on providing
solutions for physician practices. However, core ambulatory EHR
providers such as Quality Systems will see opportunities for
product sales shrink, as physician groups are increasingly
absorbed into hospitals.
Other Stocks to Consider
The stock carries a Zacks Rank #3 (Hold).
Merge Healthcare Incorporated
Mettler-Toledo International Inc.
) are Zacks Rank #2 (Buy) stocks which are expected to do
ATHENAHEALTH IN (ATHN): Free Stock Analysis
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METTLER-TOLEDO (MTD): Free Stock Analysis
QUALITY SYS (QSII): Free Stock Analysis
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