Evercore ISI Upgrades athenahealth (ATHN) to Buy
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Evercore ISI upgraded athenahealth (NASDAQ: ATHN) from Hold to Buy with a price target of $152.00.
While admitting ATHN has been a controversial stock, analyst Ross Muken cited several reasons for his upgrade:
1) ambulatory growth will slow but at a manageable rate (with long term penetration approaching 15%),
2) inpatient ($1Bn opportunity over 10 years) / pop health ($400MM TAM) demand will help to offset the slowdown and sustain growth in the high teens,
3) Margins are competitive but offer upside (based on peer analysis), while FCF is a product of CapEx overinvestment (campus build outs are costly but give back to the community), and
4) Management departures are concerning but explainable and unlikely to disrupt the long-term growth strategy.
"In our mind ATHN is a clear winner in the HIT space (disruptive / scalable platform with low acquisition cost and aligned financial model), with the real question being ‘how big’ and will they ever display ‘capital discipline’ and inflect FCF," he said.
Also, given their view of downside (low probability ‘Doomsday’ scenario yields stock at ~$100 – while our other 3 downside scenarios actually offer modest upside) and their stance on 2H results they think risk / reward is asymmetrically favorable.
Shares of athenahealth closed at $125.97 yesterday.
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