Technology

Here's Why Investors Should Retain NextGen Healthcare Stock

NextGen Healthcare, Inc. NXGN has been gaining investors’ confidence, courtesy of its continued robust performances. By fiscal 2020, the company expects high-single-digit revenue growth, mirroring operating leverage in 2021 and 2022. However, intensifying competition in the healthcare information technology (HCIT) space is a primary headwind for the company as of now.

A glance at this Zacks Rank #3 (Hold) stock’s price performance shows that it has gained 23.3% compared with the industry’s 4.8% growth in a year’s time. Additionally, NextGen has an impressive earnings surprise history, having outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 18.7%. Notably, this trend of consecutive beats underlines the company’s operating efficiency.

Factors Narrating NextGen’s Growth Story

The latest trend of electronic health record (EHR) services in the U.S. MedTech space has been gaining prominence.

In this regard, the company’s NextGen Enterprise and NextGen Office (formerly, MediTouch) software technology and solutions, which accommodate the unique needs of ambulatory practices of all sizes, are worth mentioning. These EHR solutions cater to demands like Merit-Based Incentive Payment System (MIPS) requirements, population health needs, and other value-based care initiatives.

According to Transparency Market Research, the global EHR market is estimated to reach $38.29 billion by 2025, with a CAGR of 5.7%. Reports suggest that MedTech companies with solid exposure to big data automated EHRs will excel in terms of operations and margins.

Meanwhile, NextGen will consistently benefit from strong demand for its other NextGen solutions that include Hospitals, EHR and practice management. NextGen’s Inpatient Clinicals, Lab and Patient Portal EHR solutions have also been gaining considerable traction.

Additionally, the company’s revenue growth continues to be significantly driven by the strength of its NextGen division. We believe that NextGen has solid growth prospects in the ambulatory and hospital software market owing to its product portfolio, which is compliant with the U.S. government’s regulatory reforms.

New solutions like NextGen Care and NextGen Now are expected to boost the company’s presence in health management, ambulatory EHR and practice management segments. The NextGen EHR app for iOS expands the company’s mobile efforts to support physicians in high-volume settings. Recurring revenue stream and growing base of physicians, dentists and hospitals are other major tailwinds.

For fiscal 2019, NextGen raised its earnings per share guidance. Notably, earnings are expected to be in the range of 72-76 cents, higher than 70-74 cents projected earlier. Additionally, revenues are expected between $525 million and $535 million, in line with the previously-issued guidance.

Concerns

The HCIT market is highly competitive. Also, the industry is exceedingly fragmented and includes numerous players.

Per a research report by Transparency Market Research, leading players in the Global Healthcare Information Systems Market are Cerner Corporation, McKesson and All Scripts. Collectively, these players hold a 26% share of the global market.

NEXTGEN HEALTHCARE, INC Price and Consensus

 

NEXTGEN HEALTHCARE, INC Price and Consensus | NEXTGEN HEALTHCARE, INC Quote

Which Way Are Estimates Trending?

The Zacks Consensus Estimate for fiscal 2019 earnings is pegged at 77 cents, reflecting 10% growth year over year. The same for revenues stands at $527 million.

Bottom Line

Despite cutthroat competition in the niche markets, NextGen seems to be well-positioned for growth on strong guidance and solid product portfolio. The company's long-term earnings growth rate of 8.9% also supports this view.

Stocks to Consider

A few better-ranked stocks from the MedTech space are DexCom, Inc. DXCM, Varian Medical Systems, Inc. VAR and Masimo Corporation MASI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DexCom delivered a positive earnings surprise in each of the trailing four quarters, the average being 132.3%.

Varian Medical has a long-term earnings growth rate of 8%.

Masimo Corporation has a long-term earnings growth rate of 15.6%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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