Following the release of first quarter results on May 4, 2010, most of the analysts covering Eclipsys Corporation (ECLP) have made upward revisions to their 2010 and 2011 annual estimates. The company performed impressively in the quarter, beating the Zacks Consensus Estimate by 9 cents and the year-ago earnings by 2 cents.
Earnings Report Review
Eclipsys Corporation’s first quarter 2010 earnings of 19 cents per share (excluding special items) surpassed the Zacks Consensus Estimate by 9 cents and the year-ago earnings (excluding special items) by 2 cents.
On a reported basis, Eclipsys earned 9 cents per share in the quarter as against a loss of 2 cents per share in the year-ago quarter. The elevation in the reported quarter despite lower revenues was attributable to lower expenses.
Total revenue for the reported quarter declined 2.7% year over year to $128.4 million.
(Read our full coverage on this earnings report here: Eclipsys Eclipses Zacks Estimate)
Agreement of Estimate Revisions
Over the last 30 days, 10 of the 12 analysts covering the stock have raised their earnings estimates for fiscal 2010 while only one has moved in the opposite direction. Fiscal 2011 estimates have seen similar overwhelming upward revisions over the last 30 days.
There are a number of reasons for the positive sentiment regarding Eclipsys, primarily its multiple acquisitions in the past few years, which have helped growth. In 2008, Eclipsys acquired Enterprise Performance Systems Inc., MediNotes Corporation and Premise Corporation. Each of these companies added strategic new products helping improve its competitive position and also driving growth.
In 2009, the company entered into a strategic partnership with Medicity, the market leader in enabling clinicians to access, exchange and share patient-centric clinical information locked in disparate computer systems across multiple care locations, for facilitating clinical operability and exchange of community health care data for Eclipsys’ clients. In 2010, Eclipsys and Microsoft Corporation (MSFT) agreed to deliver choice and flexibility needed by hospitals to improve efficiencies related to health information technology (HIT).
Furthermore, the wide range of products offered at Eclipsys, coupled with its efforts to expand internationally, is encouraging. The company has special focus on India as it believes that India provides access to educated professionals working on software research, development and support, as well as other functions, at an economically effective cost and also represents a significant market for the company’s software.
Magnitude of Estimate Revisions
The table indicates that fiscal 2010 estimates have risen by 5 cents over the last 30 days, while fiscal 2011 estimates have witnessed a rise of 6 cents over the same period. This again highlights the positive outlook regarding the Atlanta, Georgia-based company.
Our Recommendation
Currently, we have a Neutral outlook on Eclipsys Corporation. While we are pleased with the company’s wide range of products and its efforts to expand internationally, we remain concerned about the fierce competition it faces. Furthermore, even though the company relies on growth by acquisition and has completed multiple acquisitions over the past few years, which have expanded its product portfolio, such a strategy is fraught with risks.
Our Neutral stance on Eclipsys indicates that the stock is expected to perform in line with the broader US equity market over the next six to twelve months. We advise investors to retain the stock over this time period.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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