We initiate our coverage on Athenahealth, Inc. (ATHN) with an Outperform rating. Second-quarter fiscal 2011 earnings per share of $0.14 beat the Zacks Consensus Estimate of $0.11. Athenahealth’s web-based deployment provides a low-cost, scalable service while its flexible rules engine leads to higher efficiency in claims settlements.
The company has made rapid strides in capturing the EHR business of physician practices. However, this segment is shrinking as hospitals increasingly absorb independent practices. Athenahealth has geared itself for the enterprise segment through its strategic alliance with Microsoft and acquisition of Proxsys, both this year. Expansion of operating margin, a rising proportion of recurring revenues and better-than-expected quarterly results are pillars of strength.
It is noteworthy that the company has traditionally maintained high client satisfaction rates, which is important in an industry where referrals are an important source of business. Based on the company’s stellar performance in the past and its potential for forecast-beating results in the future, we initiate a price target of $76 per share.
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