HealthStream Shares Down 15% Recently; Baird Says Buy The Weakness

Shares of HealthStream, Inc. HSTM have lost around 15 percent after the provider of SaaS-based solutions provider to the healthcare industry confirmed it won't renew an agreement with Laerdal Medical, a key content and tech provider for Resuscitation products such a HeartCode and RQI.

HealthStream wanted to create an "open market" for Resuscitation, or at least the ability to sell newer and innovative CPR products but was limited to just selling HeartCode and RQI, Baird's Matthew Gillmor commented in a report. HealthStream was also looking to get better terms with Laerdal's products which dominates the U.S. market for virtual CPR but wasn't open to any changes given its low gross margins.

HealthStream will still be able to sell and renew HeartCode and RQI products through December 2018 and many hospitals are likely to lock in the products for one to two year agreements, the analyst continued. As such, this would spread the revenue impact from the Laerdal over the 2019 to 2021 period.

But HealthStream will be able to sell competing products to customers in 2019, which would create an annual revenue headwind of up to 4 percent during the 2019 to 2021 period. However, this is "manageable" for a company that is growing at a 10 to 15 percent rate.

The latest development comes at a time when hospital budgets are right and the addition of new competitive products to the market would be a positive for HealthStream's customers as it will create more competition, Gillmor concluded.

Bottom line, Gillmor stated his "instinct is to buy the weakness," especially ahead of the company's second quarter earnings report which typically sees a 10 percent sequential lift from the first quarter and the Street is only modeling a 2.5 percent increase.

Shares remain Outperform rated with an unchanged $35 price target.

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