Jefferies Unveils One Healtchare IT Stock To Buy, One To Sell

• Cerner Corporation CERN shares are down 12 percent in the last six months, while shares of athenahealth, Inc ATHN have risen 13 percent in the same period.
• Jefferies’ Sean Dodge maintained a Buy rating on Cerner, while downgrading athenahealth from Hold to Underperform.
• While expressing optimism regarding the future performance of higher-quality HCIT vendors, Dodge cited robust replacement opportunities and accelerating spending on PopHealth.

Analysis and data from a recent survey support the positive view on the higher-quality healthcare IT vendors over the next couple of years, analyst Sean Dodge said. He added that there is now greater confidence in the long-term bookings growth outlook for the higher-quality EHR vendors.

“Not only do we see these vendors continuing to consolidate market share, but their expanding installed-bases are growing increasingly valuable as they develop and cross-sell next-generation software and software-enabled services,” Dodge wrote.

Cerner As The Top Pick

Jefferies has a price target of $78 for Cerner, and identified the company as its Top Pick. Dodge said that industry-leading investments in R&D and streamlined implementations have enabled Cerner to boost its win rate three times versus Epic over the past 5 years.

“We expect this trend will continue, with Epic and Cerner splitting a plurality of the remaining replacements. Coupled with the managed services and PopHealth opportunities, we project CERN bookings to grow in the low-double-digits for the next 3+ years,” Dodge added.

Valuation A Concern

Jefferies has reduced the price target for athenahealth from $125 to $105. Dodge mentioned that the company had been “a refreshing and disruptive force in the ambulatory market.”

The analyst added, however that the current thesis hinged on:

1. The expectation of sequential and y/y deterioration in pricing
2. Declining return on sales and marketing investments
3. athenahealth’s shares have performed “surprisingly well” over the past several weeks. The valuation is about in-line with that of SaaS stocks that have similar revenue growth trajectories, despite athenahealth having “a less attractive operating leverage profile.”