Barclays Cuts athenahealth To Underweight, Sees Growth Rate As 'Unsustainable'

• The share price of athenahealth, Inc ATHN has appreciated 35.71 percent over the past six months, reaching a high of $166.41 on November 10.
• Barclays’ Eric Percher has downgraded the rating on the company from Equal Weight to Underweight, while lowering the price target from $140 to $110.
• The downgrade is based on expectations of physician growth, and consequently revenue growth, decelerating for the company, going forward.

Analyst Eric Percher explained, “Our proprietary analysis of the ambulatory enterprise market finds that potential athena targets among the 100 largest health systems number only 12. Moreover, the average size of these targets pales in comparison to the large wins, which helped bolster physician additions in 2014 and 2015.”

These findings suggest that physician growth would decline going forward, which would lead to a deceleration in revenue growth. In addition, the enterprise addition shortfall in 2014 is expected to adversely impact revenues in 2016, the extent of which might not be fully appreciated by investors, according to Percher.

Percher believes that athenahealth would need large enterprise wins to fuel growth. However, such wins are likely to be “few and far between,” given that “all but 17 of the 100 largest IDNs employ integrated acute/ambulatory EHRs and athena already serves five of them.”

On the other hand, Percher expects athenahealth to become a significant player in the acute rural/CAH hospital segment, over time. However, success in this market is unlikely to contribute materially to the company’s 2016 and 2017 results.

“It will likely take 3-5 years for athena to move upstream,” Percher said, while adding that year on year revenue growth is expected to decelerate from 23 percent in 2015 to 20 percent in 2016 and 17 percent in 2017.