Merge Healthcare’s (MRGE) first quarter 2011 adjusted EPS of $0.03 was below the year-ago quarter’s $0.05. The company also experienced a 950 bps contraction in gross margin.
Moreover, Merge has improved its sales force, but as a result, operating margin was down by 196 bps. Furthermore, the company’s increased interest expense affected its bottom line during the quarter.
Although there is immense potential in the diagnostic imaging market, we remain concerned about the competitive scenario and macro economic headwinds. Consequently we downgrade Merge to Underperform.
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