The overriding theme of federal stimulus is expected to continue to drive multiples higher in many names in the health care IT sector for at least the next couple of years as a tailwind for the industry, says Gene Mannheimer, Managing Director, Equity Research at Auriga USA, LLC.
“So even though the stimulus bill was signed in 2009, February 17, and the goal is to get 90% or better of hospitals and doctors on EMRs by 2015, we have already seen delays and extensions,” he said. “I would say that we are going to see further extensions and the majority of health IT purchasing will occur probably this year and next year.”
Mannheimer recommends Computer Programs & Systems (CPSI), which he says has an interesting niche in the small hospital market, with facilities that have less than 100 beds, and typically, are in rural areas of the U.S. He has a “buy” rating on CPSI with the stock at $55, and his target at $68.
“What’s nice about that market is it’s underpenetrated, unlike the larger hospitals that have 90% penetration. In other words, most of the large hospitals are already using some EMR product, and it’s essentially replacement market,” he said. “At CPSI, the segment, it’s about 50% penetrated. So there’s a lot more inherent opportunity there in the market.”
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