Incentive-Driven EHR Adoption Seperate from Health Reform

2010-03-12 12:17:06

Regardless of whether or not health care reform comes to pass in the U.S., or the form it takes should it pass, adoption of electronic health records will accelerate along with increased product demand for health care IT vendors.

"There is a little bit of perception out there that no health care reform is bad for hospitals and it's bad for the health care IT vendors," said Steve Halper, associate head of U.S. research at Thomas Weisel Partners. "This is an incorrect view, in our opinion. The reason why it's not going to happen is because the ARRA incentives are in place, and they are independent of health care reform."

While Halper predicts a rising-tide-lifts-all-boats scenario for the health care IT space, he believes those companies with the best product suites will benefit the most.

"We think that Cerner (CERN) and Epic are the top two companies in the space," Halper said. "After that it would be Eclipsys (ECLP) and McKesson (MCK). And I think their product suites are competitive, but Cerner and Epic are probably growing faster."

The analyst also emphasizes that much in the same way not all health care IT vendors are created equal, not all physicians are on the same path of EHR adoption.

"We are a little more cautious towards physician office software vendors," Halper said. "The large groups will make these investments, but the smaller physician groups will probably drag their feet a little bit more and we might not see the acceleration in demand from that segment right away."

Investors: Expect Short-Term Volatility in Western Banks

2010-03-11 19:03:26

Senior Analyst Tom Mitchell of Miller Tabak suggests a bleak forecast for Western bank investing, at least for the near future. Real estate problems cause the analyst particular concern, as an uncertain amount of expected loan risk may heavily influence this environment.

"I think that the key is that balance sheets, where commercial real estate represents 100% or 200% of shareholders' capital, are going to be subject to inherent volatility in the next six to 12 months," said Mitchell, cautioning investors who will buy regardless of trends. "So we think that investors who think they want to own banks should be prepared for that volatility and plan to hold the banks through it if they're going to own them in the first place."

Mitchell closely watches real estate value trends and the affects on such companies as Zions (ZION), City National (CYN) and Wells Fargo (WFC).

"We like to see high-loss reserves relative to non-performing assets and troubled debt restructurings; we like to see high levels of capital and some indication that increases in non-performing assets have leveled off, even though the non-performing assets are continuing to grow," said Mitchell, who expects economic fits and starts, concentrating on areas that had the most overbought real estate conditions but are now recovering.

"So that doesn't leave us with a whole lot of candidates out there," he said. "That's sort of where we tend to suggest people focus at the moment because we don't think it's clear sailing ahead."

However bumpy the road may get, Mitchell predicts investors in Western banks may find themselves a leg up on their geographic counterparts, potentially achieving better growth than the rest of the U.S. over the next 20 years.

Things Are Looking Up for IT Spending

2010-03-09 10:06:36

2010 should see a return to normalcy in corporate IT spending, with virtualization and security at the top of many CTOs' wish lists this year.

"We think it's important to keep in mind that normal IT spending growth is kind of low to mid-single digit. There will certainly be areas where there's faster growth than that," said Todd Weller, an analyst at Stifel, Nicolaus & Co. "The other thing that I think you'll see happen in 2010 is certainly there will be desktop, server and networking equipment refreshes as well to consider. We think in 2010, you get to a better outlook and visibility is better as well."

Weller bases his forecast on the solid 4Q and December-quarter results released by a number of software companies, demonstrating a trend toward improved IT spending since year end. The analyst predicts the majority of 2010 IT investments will fall in the realm of cost-effective upgrades and new technology that should lead to high ROI.

"For example, from a recent InformationWeek survey, with respect to 2010 new technology investments, there was a new customer facing projects like Web portals, sales and self-service systems, new applications to support sales, new applications to cut operating costs," said Weller, also highlighting Windows 7 as a meaningful catalyst for software updates. "Server virtualization was up there, telepresence, video conferencing, software as a service, desktop virtualization. That gives you a sense of some of the focus points."

Of the information security companies, Weller believes ArcSight (ARST) is the most poised for growth, with 30%-plus growth rates already. Under the infrastructure umbrella, the analyst cites VMware (VMW), Citrix Systems (CTXS) and Red Hat (RHT) as important plays on virtualization.

For Dividend-Paying Stocks, Look To the North

2010-02-25 11:55:04

Nick Majendie, director and senior portfolio manager of Majendie Wealth Management at Scotia McLeod, the brokerage arm of The Bank of Nova Scotia, is targeting dividend-paying stocks as a major component of his portfolios. And it comes as no surprise to him that the best names in the dividend-paying category are Canadian.

"What I would like to highlight here is that Canada does have a much greater proportion of solid dividend-paying companies where we see the potential for sequential increases in dividends over the next five years," said Majendie, whose calculations show an average five-year earnings growth rate of just under 7% for the 30 companies in his balanced portfolio, which excludes commodities. "And the dividend-per-share growth rate, we estimate over the next five years, will be 5%. If you take the current yield plus the long-term earnings growth rate, if P/E multiples don't change, you should get a healthy double-digit return from that type of portfolio."

Majendie also points out the dividend yield on the S&P/TSX is similar to Canada's bond yield, whereas U.S. stocks are much less competitive with U.S. bonds on a yield basis.

"In Canada, the S&P/TSX, which has 200-odd stocks in it, has a yield of almost 3% - about 2.9% to be precise - whereas the Government of Canada 10-year bond yields about 3.5%," Majendie explained. "When you compare [dividend-paying securities] with competing bond yields, some of these companies, particularly in Canada, have very attractive dividend characteristics; and this is one of the key themes that they are espousing not just for this year but also for the next number of years."

Also take into account the fact that Canada's banks are in a much better position than their U.S. counterparts - and that Canada's TSX has outperformed the U.S. every year since 2000 - and it seems some of the highest-yielding stocks have gone north.

"If you did consider the change in currency, the Canadian dollar in 2000 was in the mid- to high 60s and it is now in the mid-90s," Majendie said. "Thus, as a Canadian investor, you would have been a further 30% better off by investing in Canada versus the U.S. We think that's the overall context."

Analyst Q&A: Interpreting the Semiconductor Supply Chain

2010-02-24 12:27:59

In this excerpt from TWST's interview with Tristan Gerra, a senior analyst covering semiconductors at Robert W. Baird, Gerra outlines the challenges currently facing the semi supply chain, highlighting how this may impact the industry going forward.

TWST: What is the status of the semiconductor component sector right now?
Mr. Gerra: We continue to expect an upcycle for most of this year, which would be a continuation of what we saw since last February of 2009. The reason we believe the cycle would extend a few more quarters is that the inventory levels remain at historic lows in the supply chain. We've seen a slow resumption in true end demand, and the supply chain hasn't been able to catch up. So we think that until we see the supply chain normalizing, we think trends are going to continue to be above seasonal for semiconductor companies.

TWST: What are the challenges in the supply chain?
Mr. Gerra: Because the supply chain to some extent overreacted late 2008/early 2009 by drastically cutting down inventories below what was the real trend of end demand, the supply chain is trying to catch up with the ongoing recovery in end demand but hasn't been able to do that. So lead times, as a result, have expanded pretty drastically for some components. In some cases, lead times are stretching over 20 weeks, and we're not at a point yet - even after a few quarters, where we are seeing replenishments - where lead times are coming down. So we are in an environment where demand is stronger than supply at this point.

TWST: Did supplies go down because of the economy?
Mr. Gerra: Well, the triggering point was retail sales in the U.S. well below expectation in October and November of 2008, and that was in the context of people having significant concerns about the economy and what was happening in terms of banks. So as soon as people saw the weakness, they drastically cut orders in order to reduce inventory levels.

TWST: What else is happening in the component sector?
Mr. Gerra: I think we are likely to see potential increases in wafer pricing this year, which is the result of utilization rates being around 100% at some of the major foundries in Taiwan; that's one issue. Component pricing could pick up a little bit, particularly on the commodity side, which would be the first time in several years we have seen that. So net-net, it's about ramping capacity but gauging what real end demand is, and being in a situation where we could potentially have overcapacity again exiting this year.