On Mar 24, 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.
Although the company's fourth-quarter 2013 adjusted earnings
per share of 3 cents improved significantly from the loss
per share of 4 cents incurred in the year-ago quarter, a 17.2%
year-over-year decline in revenues failed to boost investors'
confidence.The company has been battling losses as its strategy
to grow with the AMICAS takeover came to naught due to
slower-than-anticipated market growth leading to choppy revenues
and an improper cost structure.
Further, the falsification of the company's subscription
backlog numbers propelled negative sentiments among investors
leading to a slash in the share price. Notably, on Jan 8, 2014,
Merge announced in an internal review that a former sales
employee in its eClinical business had falsified the existence or
amounts of certain customer contracts.
Since then several class action law suits and derivative
complaints have been filed asserting that a class of the
stockholders suffered damages due to the alleged dissemination or
approval of false and misleading statements by Merge from Aug 1,
2012 through Jan 7, 2014. Although Merge is currently working on
defending the claims, there is high chance that the company may
incur a loss in this matter.
We also 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 the general economic conditions.
Per management, the tough capital spending environment in the
hospital space was mainly to be blamed for the fourth-quarter
debacle. The company is also battling a lower-than-anticipated
market demand for its solutions. It remains to be seen whether
the new management can bring about a turnaround in Merge's
quarterly performances going forward. Amid several ongoing
challenges and in the dearth of any near-term catalyst, we expect
these negative factors to persist even in 2014.
Merge currently carries a Zacks Rank #5 (Strong Sell).
Streamline Health Solutions, Inc.
) are some better-ranked stocks in the Medical Information
Systems space. While Omnicell sports a Zacks Rank #1 (Strong
Buy), athenahealth and StreamlineHealthcarry a Zacks Rank #2
ATHENAHEALTH IN (ATHN): Free Stock Analysis
MERGE HEALTHCAR (MRGE): Free Stock Analysis
OMNICELL INC (OMCL): Free Stock Analysis
STREAMLINE HLTH (STRM): Free Stock Analysis
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