We recently reiterated our Underperform rating on Merge Healthcare Incorporated (MRGE) with a target price of $2.20, based on a P/E multiple of 10.0x our fiscal 2010 EPS estimate of 22 cents.
Merge recently reported fourth quarter and full fiscal 2009 results. For the fourth quarter, earnings per share reached 2 cents, in line with the Zacks Consensus Estimate but lower than the year-ago earnings of 3 cents. For fiscal 2009, earnings per share were 9 cents, substantially higher than the year-ago loss per share of 39 cents.
Total sales in the fourth quarter increased roughly 28% year over year to $19.3 million. Growth was led by strong services and maintenance revenues that increased 62% year over year to $11.7 million. Software and other revenues declined 3% year over year to $7.6 million.
The company also witnessed an expansion in its top-line in fiscal 2009, with total revenues increasing 18% year over year to $66.8 million.
Merge registered a contraction in margins in the fourth quarter. Gross margin declined 370 basis points (bps) year over year to 65.9%. Operating margin declined 1,680 bps year over year to 7.6%.
Merge is a healthcare software and services company focused on integrating radiology workflow to improve productivity, profitability and patient care by fusing business and clinical workflow, and intelligently managing and distributing diagnostic images and information throughout the healthcare enterprise.
Merge was paralyzed by several issues in the past, like a dwindling cash balance, management turnover, accounting miscues and litigations. The real turnaround started from the second quarter of 2008 when the company received a much needed cash infusion of $20 million from Merrick RIS, LLC in May 2008.
Merge is also likely to benefit from the U.S. government’s approval of over $20 billion in spending on health information technology. However, a majority of the spending in the U.S. will be felt between 2011 and 2015.
Merge’s main competitors include AllScripts-Misys Healthcare Solutions (MDRX) and Amicas, Inc. (AMCS).
Read the full analyst report on “MRGE”
Read the full analyst report on “MDRX”
Read the full analyst report on “AMCS”
Zacks Investment Research
