Be Aware of athenahealth's (ATHN) Analyst Day Risks - Jefferies

Expectations are high on two key fronts heading into athenahealth (NASDAQ: ATHN) Dec. 10 analyst day. Jefferies analyst, Sean Dodge, said investors will primarily be focused on the debut of 2016 guidance and indicators of the size and timing of the inpatient revenue ramp. Unfortunately, he also thinks that both will be disappointing.

ATHN will debut '16 guidance on Dec. 9 AMC. Consensus EPS of $1.58 already implies 16% growth leaving little chance it targets anything greater. It is also unlikely to deviate from its 20-25% revenue growth aspirations; however, costs could end up increasing. Efficiencies in GM and G&A leverage will not be enough to offset higher required investments in both R&D and S&M.

There seems to be widespread acceptance of the idea of plateauing ambulatory revenue growth, but Bulls believe an increasing contribution from ATHN's yet-to-be-fully-developed inpatient offering will be enough to drive consolidated growth back into the high-20%s. There are three problems with this: (1) a typical CAH is only worth ~$400k of annual revenue for ATHN, so many are required to drive an inflection in growth; (2) initial adoption will be slow given the small number of reference sites; and (3) the incremental development work needed to push into 100+ bed facilities will take years, not months.

Considering these two problems, the $105 PT (4.0x EV/'16E sales) seems appropriate. It is a slight discount to SaaS peers with similar revenue growth profiles and considering the risks of a high multiple stock increasing competition, cross-sell execution, and automation of labor-intensive tasks the slight discount may prove conservative.

For an analyst ratings summary and ratings history on athenahealth click here. For more ratings news on athenahealth click here.

Shares of athenahealth closed at $167.87 yesterday.

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