Saturday, March 06, 2010

Lighting Up Medical Records

The last time you were in a doctor’s office, where were the medical records? Were they behind the receptionist in a large metal filing system? Maybe your doctor is well healed and has fancy built-in file drawers. One way or the other, it is not likely that your doctor has your medical record in a digital format. That is because, despite the Congressional mandate that requires physicians and hospitals to begin using electronic record keeping by 2014, only a minority of doctors have made the transfer.

That presents market opportunity for the developers of medical record keeping systems. Unfortunately, the stock of those companies ran up early after Congress took action two years ago.

I recent caught up with the management of Quality Systems, Inc. (QSII: Nasdaq), which develops and markets healthcare information systems intended to automate certain processes common in medical and dental practices, and physician hospitals, among other health care practices.

The Company has a string of announcements behind it detailing new customer adoptions. QSI also recently signed an agreement to acquire Opus Healthcare Solutions, another developer of software applications for inpatient health care providers. This deal along with the acquisition of Sphere Health Services in August 2009, are expected to be accretive in fiscal year 2011.

The two deals are expected to address one of the primary excuses offered by physicians for dragging their feet on electronic records - interoperability and functionality. Putting Opus and Sphere together will allow QSI to offer a fully integrated clinical and financial solution. The product suite will be marketed under QSI’s brand NextGen Healthcare.

QSI recorded $279.1 million in sales in the twelve months ending December 2009, earning $46.7 million in net income or $1.63 per share. The trailing price earnings ratio is 35.4 times. The consensus estimate is for another $0.49 per share in earnings in the final quarter of fiscal year 2010 (March 2010) on $78.8 million in sales.

If that seems a bit expensive, you may be right. There are over twenty analysts following QSII, which is surprising given the company’s stature as a small cap. That is likely one of the factors that has led to a premium valuation. One consolation is a $1.20 dividend that is currently yielding 2.1%.


Neither the author of the
Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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