Allscripts (MDRX) is a tail Short with 30% downside from current levels.
ADDING MDRX TO BEST IDEAS AS A SHORT
We've schedule a call to review our short thesis for Thursday January 21st, 2016 at 11 AM ET. Contact for further information. An invite with dial-in instructions will be sent to subscribers ahead of the conference call.
We continue to spend a significant amount of time analyzing a dataset that shows us a highly detailed and large list of customers for each vendor down to the physician level. Our work so far has identified several large Allscripts customers who are at significant risk for replacement in coming years.
Now that we know who to target, the workflow is to reach out to speak with key people to confirm the data and collect additional anecdotes about current and future plans around vendor selection, a process that we began yesterday.
While we are only at the starting line with this data process, the information we’ve gathered has already given us greater conviction in our short call. These data sets are huge and we’ll be refining the analysis as we go, so look for more on this as we progress through 2016.
KEY THESIS POINTS
- MARKET SHARE DONOR
Data continues to show ambulatory and inpatient share losses. We expect this trend to continue as large health systems consolidate and value based reimbursement drives the need for a single inpatient EHR. On the ambulatory side (~50% sales), Allscripts will continue to lose business (prospective and current) to peers athenahealth and eClinicalWorks, both of whom surpass Allscripts in interoperability and outsourcing capabilities. We will be receiving quarterly market share updates from SK&A to monitor our thesis, and will continue update our proprietary trackers.
- LIMITED ADDRESSABLE MARKET
While Allscripts reputation has markedly improved since the dark days of 2012-2013, the reality is that the damage is already done. Many Hospital Executives refuse to include Allscripts in RFPs and estimates of mind share vs. market share do not bode well for bookings growth. Based on industry ratings and anecdotes, the probability of Allscripts unseating the current acute care EMR vendor at any large IDN is low. We will continue to collect anecdotes from industry participants, including current Allscripts customers.
- ESTIMATES TOO HIGH
Current valuation appears to be supported by accelerating sales growth in 2018-2019 from low single digits to mid-teens. In order for this to occur, bookings would need to sustain +25% growth and backlog conversion accelerate. With system sales in secular decline, new contract lengths ranging from 5-10 years and for the reasons outlined above, we find this unlikely.
Based on our interactions with investors, it is clear that the Allscripts (MDRX) story is a contentious one and is partially reflected in the short interest. Below is a summary of what we believe to be both sides the debate. While many elements of the bull case are true, we think the fundamental reality is not accurately reflected in the current stock price.
Please call or e-mail with any questions.