Vice President At Deutsche Bank Securities Gives MedAssets (MDAS) A Strong Buy Rating: Only Stock To Be Given That Rating In Health IT Space
March 15, 2010 - The Wall Street Transcript has just published offering a timely review of the Health Services 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 with the health care services and technology team at Deutsche Bank. He joined DB in July 2006, and is responsible for all companies within the health care services and technology universe. Mr. Cherny also initiated co-coverage in the health IT sector in September 2008 and primary coverage in July 2009. Previously, he was an Analyst in the Healthcare Corporate and Investment Banking Group at Banc of America Securities LLC. Mr. Cherny graduated with honors from the Goizueta Business School at Emory University in 2004 with a bachelor's degree in business administration.
TWST: How would you say the political situation in Washington will affect the health care IT industry now?
Mr. Cherny: I think the biggest movement you see for the industry is the funding related to the HITECH Act included in the American Recovery and Reinvestment Act, which provided 19 billion - upwards of 30 billion if you take some of the other sources involved in the stimulus - to help drive EHR adoption. I apologize if I interchange EHR and EMR - I mean, the same thing. There is a very clear pace that Obama wants to continue on the mandate originally set out by both President Clinton and President Bush before him to try and get the United States to a point where we have every American having some sort of EHR. This is the first time that you've had a significant source of funding to help try and support that drive. So very clearly, technology is a major focus of this administration in terms of the ability to deliver better health care.
TWST: Are there any particular companies in this base that you think are setting themselves up well to meet the anticipated demand?
Mr. Cherny: Yes, the one company that we focus on, that we think is well positioned for the impact of the stimulus, is athenahealth (ATHN). They grew up or kind of started the company as a revenue cycle management, a company that then branched out into the electronic health record market. They go to market with software as a service, or as they refer to it, as software-enabled service solution, which tends to be lower priced, easier to deploy, more flexible.
Those qualities are something that we have seen from our channel checks that physicians in the smaller end of the market, which is by far the most under-penetrated area of EHRs, view as the kind of quality they want in their technology. So athena, which has close to 20,000 physicians already using its athenaCollector, or revenue cycle management product, and less than a thousand in their EHR product, has a very strong retail opportunity to help drive further adoption of its own product.
TWST: What are other companies you cover?
Mr. Cherny: For companies that service the physician market, it is Allscripts-Misys (MDRX) and Quality Systems (QSII), with its NextGen business. In the hospital market, the EHR vendors we cover are Cerner (CERN), Eclipsys (ECLP) and then I co-cover McKesson (MCK). And then two ancillary technology vendors that service primarily the hospital market but in different businesses are MedAssets (MDAS), which has revenue cycle management products as well as a GPO, and Vital Images (VTAL), which makes advanced visualization software.
TWST: Which of these companies, particularly those related to technologies, stand out to you as good investments at the moment?
Mr. Cherny: MedAssets is the one "buy"-rated stock we have in our health IT coverage universe within health IT. Although McKesson as well, although that's a hybrid business, it also has its core pharmaceutical distribution business. For the pure-play companies in IT, it's MedAssets. Basically, our view on this company is they offer very low-cost, easy-to-deploy service solutions to help hospitals address both their revenue cycle integrity, through the company's revenue cycle management product suite; their supply spend, through the company's spend management suite; and that piece of the business is based around improved utilization of supplies.
TWST: What's investor interest like in the space at the moment? What are you telling investors to do?
Mr. Cherny: Investor interest has gone through the roof since the initial rumblings of the stimulus. It's always been an in-focus group, but the amount of investor calls we get, especially compared to the market cap of the group as a whole, has increased exponentially. Someone made a joke to me at the athenahealth analyst day that there is something like 14 million of market cap for every either sell-side analyst or buy-side investor that was in the room.
TWST: When do you see that panning out? What are you advising investors to do in the meantime, until something concrete is in place?
Mr. Cherny: You start to see order flow into the companies in the form of the bookings growth, but the actual spending on technology has not really ramped yet because of the trajectory of when the stimulus funding becomes available, which would be at the end of this year and beginning of 2011. So I think that you will start to see an impact on individual company results in terms of increased spending and therefore increased revenue growth in the second half of this year and in 2011, as hospitals and physicians prepare themselves to achieve whatever the final definition of meaningful use is going to be.
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