Robust quarter for healthcare tech suppliers

Most US healthcare technology companies enjoyed solid growth, based on strong fourth-quarter earnings reports.

Most US healthcare technology companies enjoyed solid growth, based on strong fourth-quarter earnings reports.

Net income for IDX Systems and Cerner rose 6% and 13% respectively, compared with the same quarter last year. McKesson and Per-Se Technologies were up 22% and 10% respectively.

"An upswing in investments in healthcare technology, stemming from initiatives to increase patient safety and streamline clinical workflow, played a large part in most companies seeing positive earnings," said Gene Mannheimer, senior research analyst at Roth Capital Partners.

Mannheimer was certain the industry's momentum will not slow down for several quarters. "Automation and adoption in healthcare technology has, historically, been slow and lagged behind other industries," he added. 

"Now there is some ammo in Congress, and the Bush administration has increased its budget for healthcare-IT investments, with vendors slated to be the main beneficiaries. Also, hospital IT spending, which has typically accounted for 2% to 3% of total operating budgets, may be as high as 5% in 2004."

Smaller companies also enjoyed positive growth. Neoforma's year-end revenue was $11.1m, representing a 39% increase from last year, and Allscripts was up 19% at $23.7m. Yearly profit also rose at both companies, with Neoforma enjoying a $9.6m increase and Allscripts up by $7m.

Mannheimer expected "small cap" vendors to see a rise in stock price of between 10% and 20% over the next year, although he warned that it is difficult to determine their fair value.

"I think it is safe to say current valuations reflect industry promise better than they did a year ago," he said. 

Another indication of positive growth is the strong performance of enterprise healthcare software suppliers, said Sean Jackson, analyst at Avondale Partners. "This was a strong quarter for these types of companies, and the outlook for the rest of 2004 is positive." 

Jackson added that industry health is as good as it has been in a number of years because of standards-related initiatives and the push for healthcare IT being made by politicians, payers and hospitals.

Increased customer spending, the well-attended HIMSS conference last month, and the NHS IT project are also strong indicators of a solid market, Jackson said.

"This is a decent time to be in healthcare technology. There is a lot of optimism and confidence throughout the industry."

Jeff Berman writes for Health-IT World

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