Exclusive Interview With Deutsche Bank Health Care Analyst; ERH Stock Showing 20% Bookings Growth Over Last Two Quarters
July 6, 2011 - The Wall Street Transcript has just published Health Care IT Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Michael Cherny, Vice President, is a Research Analyst on the health care services and technology team at Deutsche Bank Securities Inc. Mr. Cherny joined the bank in 2006 and is responsible for six companies within the health care services and technology universe. He also initiated co-coverage of the health IT sector in 2008 and primary coverage in 2009. Previously, he was an Analyst in the health care corporate and investment banking group at Banc of America Securities LLC, with a particular focus on life sciences and health care services companies. Mr. Cherny graduated from the Goizueta Business School at Emory University in 2004 with a bachelor's degree in business administration.
TWST: In which customer segments or end markets are your companies seeing the most growth? Which of your companies do you think are best positioned to serve the segments that are growing?
Mr. Cherny: The large hospital market, and particularly the for-profit hospitals, have led the way. Cerner (CERN) actually signed two of the largest for-profit chains back in the beginning of 2010, which were signature wins for the company, and Cerner has seen very strong bookings growth because of their exposure to the hospital market. What we have also started to see is customers in the larger end of the physician market making their purchasing decisions, either in terms of upgrading their systems, replacing one system with another, or for user groups that had nothing previously, going out and buying their first EHR. That's where a company like Allscripts has really benefited. They have seen some very strong bookings trends - 20% bookings growth over the last two quarters, including some very sizable customer wins, particularly selling legacy Allscripts products into the existing Eclipsys customer base following the merger of Allscripts and Eclipsys last year.
TWST: How would you describe the competitive landscape for companies in this sector, and which of the companies you cover has done a good job at differentiating itself?
Mr. Cherny: It's a very strong, competitive market with numerous players. There are many more players, particularly on the private side, in the physician market, especially servicing the smaller physician groups. The hospital market has fewer players, but it is fairly competitive in that market as well, with Cerner being the biggest public player there. We continue to view that there will be a flight to best-in-breed EHR vendors over the course of the stimulus, particularly as the requirements for stages two and three of meaningful use get stricter and the bars raised further in order to achieve meaningful use.
We view both Cerner and Allscripts as well positioned to benefit from that trend, given their vast resources and their continued focus on technology improvements through their R And D spend. One other company that has done a very good job in terms of penetrating the physician market is athenahealth, and they have come to market with a much different approach through their software as a service business. Additionally, the way they have come to market is they lead with their athenaCollector product, which is their revenue-cycle management product, which helps improve cash collections by improving the billing services for their physician customers.
TWST: From a technological perspective, which other companies do you believe have introduced particularly innovative solutions over the last couple of years?
Mr. Cherny: athena is by far the company we view as the best innovator within the EHR space, and they are a fairly new entrant to the electronic health record market. But their growth there remains robust. This is evidenced by the double-barrel deals I mentioned before, which as of the last quarter, 69% of new deals were of a double-barrel nature. And they actually have a third product solution, the athenaCommunicator product, which is also gaining traction in the market, with 25% of what are called triple-barrel deals in last quarter.
TWST: What do you like about your two "buy"-rated stocks, and what differentiates them from the rest of the group?
Mr. Cherny: We view Allscripts as in the best position to gain incremental market share because of their broad product suite, which allows them to sell into all different areas in the market. So they are the company that has specific products to sell into all customer areas, from the large hospital group all the way down to the small physician practices. We think that the combination with Eclipsys, as well as previously when they made the acquisition of Misys (MSY), has further built up that product suite.
Additionally, following the merger with Eclipsys, the company has significant opportunities both on the cost and revenue sides to generate synergy capture, which should help drive upside to consensus estimates. Historically, when Allscripts has done acquisitions, they have been very effective at overachieving on cost-related synergies, and we would not expect that to be any different here. On the revenue side, as I mentioned earlier, the company has already done a very strong job of cross-selling into the legacy customer bases, particularly selling Allscripts ambulatory products into the legacy Eclipsys hospital base.
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