NextGen Healthcare, Inc. NXGN is well poised for growth backed by growing RCM (Revenue Cycle Management) and electronic health record (EHR) markets, and solid demand for other NextGen solutions. However, intense competition in the healthcare information technology market remains a concern.
Shares of NextGen Healthcare have gained 1.9%, compared with the industry’s growth of 11.3% in a year’s time. Meanwhile, the S&P 500 Index has rallied 18.4% in the same timeframe.
The company, with a market capitalization of $1.19 billion, is a developer and marketer of healthcare information systems. It anticipates earnings to improve 8% over the next five years. Moreover, it has beat estimates in the trailing four quarters by 3.5%, on average.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Deterring the Stock?
The company operates in the highly competitive healthcare information technology (HCIT) market, which in turn escalates pricing pressure.
Further, the company has been witnessing margin pressure for a considerable period of time and is likely to persist in the near term.
In fact, the gross margin in the fiscal second quarter was 51%, down 210 bps. Moreover, adjusted operating margin, as a percentage of revenues, was 56.2%, down 340 bps.
What’s Favoring the Stock?
Being a major player in the U.S. RCM space, the company continues to benefit from this market. The global RCM market is anticipated to reach $73.2 billion by 2026 at a CAGR of 12.0%.
Given the popularity of the RCM solution, the company intends to expand into dental and hospital markets. This, in turn, will boost the top line.
On the basis of the latest trend of EHR services in the U.S. MedTech space gaining prominence, the company is expected to benefit from the growing global EHR market.
According to Transparency Market Research, the global EHR market is estimated to reach $38.29 billion by 2025 at a CAGR of 5.7%. Further, reports indicate that MedTech companies with significant exposure to big data automated EHRs will excel with respect to operations and margins.
Apart from RCM, NextGen Healthcare will continue to benefit from strong demand for its other NextGen solutions that include Hospitals, EHR and practice management. NextGen’s Inpatient Clinicals, Lab and Patient Portal EHR solutions have also been gaining significant traction.
Strength in the company’s NextGen division is driving the company’s revenues. Moreover, recurring revenue stream and growing base of physicians, dentists and hospitals are other tailwinds.
Which Way Are Estimates Headed?
For fiscal 2020, the Zacks Consensus Estimate for revenues is pegged at $541.1 million, indicating an improvement of 2.2% from the prior-year period. The same for earnings stands at 86 cents per share, remaining flat from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Conmed Corporation CNMD, West Pharmaceutical Services, Inc. WST and Edwards Lifesciences Corporation EW, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conmed has a long-term earnings growth rate of 17%.
West Pharmaceutical has a long-term earnings growth rate of 14%.
Edwards Lifesciences has a long-term earnings growth rate of 14.8%.
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