Recently, Quality Systems Inc. (QSII) signed an agreement to acquire Opus Healthcare Solutions, Inc., which delivers web-based clinical solutions to hospital systems and integrated health networks. The acquisition complements and will be combined with the assets of Sphere Health Systems, Inc. (a service provider of information systems to healthcare facilities), acquired in August 2009.
Both Opus Healthcare and Sphere Health Systems will become part of NextGen Healthcare Information Systems, the wholly-owned subsidiary of Quality Systems. The NextGen division, with headquarters in Horsham, Pennsylvania and a second significant location in Atlanta, Georgia, focuses principally on developing and marketing products and services to medical practices.
Both transactions, the acquisition of Sphere Health Systems as well as the purchase of Opus Healthcare, are expected to be accretive to Quality Systems in fiscal year 2011 (ending March 31, 2011). The integration of the assets of Opus and Sphere will allow NextGen Healthcare to provide superior clinical and financial solution. The transactions are part of NextGen’s continuous efforts to meet the increasing needs of the community healthcare market.
With these additions NextGen will aim to provide solutions to hospitals with 100 beds or less, a market with a huge unmet need which is in urgent need of state-of-the-art systems. The acquisition of Opus Healthcare by Quality Systems marks the latter’s entry into the rural and community marketplace. Demand in the rural and community marketplace has risen with the emergence of health information exchange initiatives coupled with the impending incentives under the American Recovery and Reinvestment Act (ARRA).
We advise investors to retain Quality Systems in the short-term (Zacks Rank# 3 [Hold]). Our expectation is based on the roughly equivalent pressure in both directions from analysts covering the stock for the next quarter over the last 30 days.
While 5 of the 23 analysts have lowered their earnings estimates for the next quarter (ending March 31, 2010) in the last 30 days, 4 have moved in the opposite direction. Furthermore, the magnitude of the revisions is negligible. As a result of the lack of strength and magnitude of the revisions our short-term recommendation on the stock is Hold.
We are Neutral on Quality Systems in the long-term as well. The stock is expected to perform in line with the overall U.S. equity market over the next 6-12 months.
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