Allscripts (MDRX) Up 13.3% Since Earnings Report: Can It Continue?

About a month has gone by since the last earnings report for Allscripts Healthcare Solutions, Inc. MDRX. Shares have added about 13.3% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Allscripts reported second-quarter 2017 adjusted earnings of 15 cents per share, in line with the Zacks Consensus Estimate. The figure edged past the year-ago earnings of 14 cents per share.

Adjusted revenues, which exclude acquisition-related deferred revenues (Netsmart) grew 8% to $428 million. Adjusted revenues surpassed the Zacks Consensus Estimate of $424.2 million. Without the adjustments, Allscripts reported revenues of $426.1 million, which also outpaced our estimates.

Quarter Details

Key Highlights: Solid growth in U.S. Core Solutions and Services, fueled by Sunrise electronic health record (EHR) platform and Allscripts Revenue Cycle Management Services buoyed optimism in the second quarter. Furthermore, increased demand for CareInMotion solution in the health plan market and multiple global clients across the U.K. and the Asia-Pacific region drove revenues. Allscripts’ cloud-based precision medicine platform 2bPrecise announced a technology license agreement and collaboration with Mayo Clinic in the quarter.

Bookings: Bookings in the second quarter were $407 million (highest till date), up 12% on a year-over-year basis. 50% of net bookings emerged from software delivery unit, while the remaining were related to client services.

Solid growth in bookings was fueled by double-digit growth in the Payer and Life Sciences business. Furthermore, Netsmart registered record bookings in the quarter, with the majority registered from new clients. 

Software Delivery, Support and Maintenance Revenues: This segment consists of all software, hardware, subscription, other transactions and support and maintenance revenues. According to management, adjusted revenues at the segment increased 9% to $283 million in the quarter.

Client Services Revenues: This segment consists of recurring managed services and other project-based client services revenues. Client service revenues were up 6% on a year-over-year basis to $148 million.

Recurring Revenues: This segment consists of subscriptions, recurring transactions, support and maintenance and recurring managed services. Adjusted recurring revenues increased 8% on a year-over-year basis.

Non-recurring Revenues: This segment comprises systems sales and other project-based client service revenues. Adjusted non-recurring revenues increased 8% on a year-over-year basis.

Margin Details

As a percentage of revenues, Allscripts registered adjusted gross margin of 48% in the second quarter compared with 48.1% in the year-ago quarter. Margins contracted 10 basis points (bps) on a year-over-year basis.

Software gross margin, as a percentage of revenues, decreased 260 bps on a year-over-year basis. However, Client service margins in the second quarter increased almost 410 bps to 18% of revenues, compared to 13.9% for the same period last year. Margin expansion was on the back of gains in efficiencies and scale within the company’s managed services business.

Adjusted operating expenses in the quarter totaled $141 million, reflecting a 6% year-over-year increase.

Guidance

For full-year 2017, the company expects revenues between $1.79 billion and $1.82 billion, up from the previously issued range of $1.71 billion to $1.74 billion.  Adjusted earnings per share are expected to grow in the band of 10% to 15%. Adjusted EBITDA is expected in the band of $345 million and $365 million.

For 2018 to 2020, Allscripts raised its adjusted revenue growth guidance. The company expects adjusted revenue growth in the band of 9% to 11%, up from the previously issued range of 6% to 8%. Adjusted earnings per share are expected to increase in the band of 17, up from the previously issued range of 12

Most importantly, Allscripts announced the acquisition of the hospital and health system business of McKesson Corporation (MCK), which is estimated to close early in the fourth quarter of 2017. The deal is worth $185 million in cash.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There have been three revisions higher for the current quarter compared to six lower.

Allscripts Healthcare Solutions, Inc. Price and Consensus

 

Allscripts Healthcare Solutions, Inc. Price and Consensus | Allscripts Healthcare Solutions, Inc. Quote

VGM Scores

At this time, Allscripts' stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

While estimates have been moving downward, the magnitude of the revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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