athenahealth on Cloud 9 With HMA Deal


You can't blame athenahealth (NAS: ATHN) CEO Jonathan Bush if he acts like he's on cloud nine these days. The Massachusetts-based vendor of electronic health records systems recently scored its biggest coup ever by winning a deal with Health Management Associates (NYS: HMA) , which operates 70 hospitals in 15 states.

What does it mean?
What does this deal mean for athenahealth? All 1,200 of HMA's employed physicians will use cloud-based solutions from athenahealth. Analyst Sean Wieland with Piper Jaffray estimates the deal will bring in around $28 million in revenue annually. If that prediction is correct, the contract with HMA would add nearly 9% to athenahealth's 2011 revenue total.

Another plus for athenahealth is that it will be able to market its solutions to nearly 10,000 independent physicians affiliated with HMA's hospitals. There is no guarantee on how successful the company will be in making additional sales with these physicians, but having an endorsement from HMA certainly should help.

There is also the momentum factor. According to Wieland, athenahealth is displacing the NextGen system sold by rival Quality Systems (NAS: QSII) . Quality Systems has been growing its earnings more steadily than athenahealth over the past couple of years. athenahealth is trying to gain ground on competitors Quality Systems, Allscripts (NAS: MDRX) , and Cerner (NAS: CERN) for EHR market share. Scoring a win with one of the largest health systems in the country could be a momentum changer.

Just a few days ago, athenahealth raised its revenue and earnings outlooks for the rest of 2012 after posting solid results in the most recent quarter. The deal with HMA likely played a big role in these revisions.

Jump on the cloud?
Should athenahealth be on investors' radar screens in light of all this good news?

The stock still seems way too expensive at a price-to-earnings multiple of (gulp!) 198. Allscripts and Cerner trade at P/E multiples of 27 and 40, respectively. Quality Systems looks cheap by comparison, with a P/E of 18.

The HMA deal is great news for a company with solid growth prospects. However, even factoring in these growth opportunities, athenahealth is trading at stratospheric levels. My recommendation to investors is to stay grounded for now.

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