Can Business Services Aid athenahealth's (ATHN) Q2 Earnings?

athenahealth Inc. ATHN is scheduled to report second-quarter 2018 results on Jul 30, after market close. While the company’s core Business Services segment is likely to drive growth, a decline in Implementation and Other segment might offset it partially.

In the last reported quarter, athenahealth posted adjusted earnings of $1.25 per share which beat the Zacks Consensus Estimate by 71.2%. Furthermore, earnings skyrocketed 290.6% from the year-ago quarter. The company posted revenues of $329.4 million, beating the Zacks Consensus Estimate of $319 million. Revenues increased 12% year over year.

For the quarter to be reported, the Zacks Consensus Estimate for revenues is pegged at $334 million, reflecting year-over-year growth of 10.9%. The same for earnings is pinned at 92 cents, showing year-over-year growth of a whopping 80.4%.

athenahealth, Inc. Price and EPS Surprise

 

athenahealth, Inc. Price and EPS Surprise | athenahealth, Inc. Quote

Let’s delve deeper.

Business Services to Drive Q2

athenahealth’s core Business Services is a key unit, which has been fortifying the company’s market position in terms of exclusiveness of services in the respective markets. The segment contributed 95.1% to net revenues in the last reported quarter. Business Services grew 12.6% from the year-ago quarter to $313.3 million.

Applications like athenaClinicals, athenaClinicals-Streamlined, athenaInsight, athenaCommunicator, athenaOne, athenaCollector for Hospital and Health Systems and the brand promise of ‘Unbreak Healthcare’ comes under athenahealth’s business services segment.

For the second quarter, the Zacks Consensus Estimate for the segment’s revenues stands at $327 million, indicating a year-over-year rise of 11.6%.

Other Factors at Play

Implementation and Other

This segment consists of amortization of deferred revenue on implementation services. In the last reported quarter, this segment accounted for a mere 2.1% of net revenues. The segment saw a year-over-year decline of 1.4% to $7 million in the quarter.

For the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues is pegged at $7.6 million, which shows a year-over-year decline of 6.5%.

Hence, a possible decline in the segment is likely to mar second-quarter results.

Focus on EHR

The U.S. MedTech space is gradually catching up with the big data age. Electronic Health Record (EHR) and Electronic Medical record services are gaining prominence. athenahealth has been hogging the limelight on its cloud-based big data network — athenaNet. Per management, currently there are more than 114,000 providers on athenaNet.

Moreover, athenaClinicals is the company’s first economically sustainable, Big Data-based electronic medical records system.

Small Hospital Market

athenahealth continued to make progress in the small hospital market. In 2018, the company focused its effort to serve rural hospitals and disrupt traditional software vendors. Per management, the focus is currently on building a sustainable and network centric service for small hospitals.

What Our Model Predicts

Our quantitative model predicts an earnings beat for athenahealth this quarter.

This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. It can be illustrated below:

Earnings ESP: Earnings ESP for athenahealth is +8.82%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: athenahealth carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they also have the right combination of elements to post an earnings beat this quarter.

Edwards Lifesciences Corporation EW has an Earnings ESP of +0.59% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teleflex Incorporated TFX has an Earnings ESP of +0.34% and a Zacks Rank #3.

PerkinElmer, Inc. PKI has an Earnings ESP of +1.03% and a Zacks Rank #3.

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