Stimulus-Driven Acceleration And Optimism For Health Services Sector- Anthony Vendetti - Maxim Group LLC
March 22, 2010 - The Wall Street Transcript has just published Health Care IT Report 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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Anthony Vendetti is the Director of Research and Senior Health Care Analyst at Maxim Group LLC. Mr. Vendetti has been on Wall Street for more than 15 years and follows the medical device, health care information technology and services industries. Prior to joining Maxim Group, he was a Senior Health Care Analyst at Gruntal, UBS Securities and Ladenburg Thalmann.
He was ranked as the number three health care equipment and supplies analyst in the 2006 Forbes/StarMine survey, and took the number three spot in medical equipment stock picking in The Wall Street Journal's 2005 "Best On the Street" survey. Mr. Vendetti received his MBA in finance and accounting from Rensselaer Polytechnic Institute, and his B.S. in biology from Binghamton University.
TWST: What is your perspective on the health care IT sector, given the state of the economy right now and the burgeoning health care program?
Mr. Vendetti: Unlike proposed health care reform, the American Recovery and Reinvestment Act, better known as ARRA, already passed in February of 2009. Therefore, the stimulus dollars have already been allocated. There have been a couple of figures thrown about - one is 20 billion, but the real number is 36 billion. The only reason the 20 billion number is sometimes in the press is because if physicians and hospitals don't adopt the information systems, there will eventually be penalties, which could reduce the 36 billion to 20 billion in stimulus dollars over time. But it's already been passed; it's already been allocated. It is, we think, a great opportunity to move our country forward in terms of the convergence of information technology and health care.
I think it's the one industry, the last bastion left, that hasn't adopted automation to a large extent anywhere. I believe it's crying out for automation. There are way too many inefficiencies. If we date it back to 1999, the IOM (Institute of Medicine) came out with a report that said up to 100,000 people die every year from avoidable medical errors. So there is a huge opportunity to not only reduce some of the redundant paperwork that's out there, but also to reduce the inefficiencies in the system through automation.
TWST: What companies are best poised to benefit from the stimulus? What factors would you say are setting companies up to benefit from the stimulus?
Mr. Vendetti: Well, there is some correlation with size, but I don't think there is a direct correlation. If you are a young company with a great product, you can do well. An example of that is athenahealth (ATHN). athena's had great growth and remarkable traction with their RCM product, the revenue cycle management product, athenaCollector. They've done a great job as a young company, gaining traction in a category that really needed a great product. I think they have a unique business model as well that makes them very attractive for hospitals and large physician groups to sign up with athena. So while size is a factor, you don't need to be large to have a significant impact.
Certainly, if you have a large prospective customer base and you have a great product, it's much easier to penetrate that customer base. And in health care, there is definitely a comfort level with particular providers or customers. So if providers are using a product and they are happy with it, it's much easier to sell other products into that customer base. And generally, when you make an investment in an HIT system, especially if there are large investments required, then it is less likely that the customer is going to switch. This is particularly true when you're talking about large hospital information systems, such as the systems offered by Cerner (CERN) and Eclipsys (ECLP).
TWST: What are your top companies right now going forward?
Mr. Vendetti: That's a fair question. We follow six what we consider "pure" HIT companies right now, and we think that all will benefit to various extents from the stimulus. There are companies that will benefit and then there are stocks that will benefit, and those are two different questions. I think all the companies will benefit. However, I think certain stocks reflect some of that expectation while other stocks do not, based on their valuation. In terms of the companies, I think all six companies that we follow, so that would be athenahealth, Cerner, Eclipsys, Quality Systems (QSII), Allscripts (MDRX) and to some extent even Emdeon (EM)" will benefit. Right now we have "buys" on Allscripts and athena; we have "holds" on Cerner, Eclipsys and Quality Systems; and we have a "sell" on Emdeon.
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