Sterne Agee Downgrades athenahealth to Underperform

Business services company athenahealth (NASDAQ: ATHN) was downgraded to Underperform from Neutral by Sterne Agee on Wednesday.

The company provides Internet-based business services for physician practices and offers features including a revenue cycle management service that automates and manages billing-related functions for physician practices and includes a practice management platform. The stock has a current price of about $81.50, above the average consensus price target of $76.50.

Sterne Agee however, while calling athenahealth an "incredibly attractive revenue growth story", foreshadowed that the company's "ability to expand margins will be hampered by the increasing labor costs necessary to handle a growing installed base on Clinicals, thus suppressing margin expansion going forward."

The news comes on the same day that privately-held Medford Medical Clinic, a provider of diversified medical services, announced that it will be implementing athenahealth's services to drive quality across practice management, patient communications, and patient care.

“The leadership team at Medford Medical Clinic should be commended for showing the forward thinking necessary to help drive innovation across their system," said athenahealth CEO Jonathan Bush. "They are the type of organization that excites us, particularly their willingness to embrace cloud-based solutions as an example of what can be accomplished by independent practices intent on improving outcomes and access while reducing costs."

Despite that, Sterne Agee analyst Greg T. Bolton questions in the report if the company is actually moving away from the Cloud, believing that the design of athenaCollector might contain some labor costs, including customer support since athenahealth has been able to automate and offshore much of the human element.

"With athenaClinicals, the tasks surrounding the point of care requires far more labor hours per physician, like fax scanning and upload, lab image uploads, as well as customer support," Bolton said. "As the installed base on Clinicals continues to grow, we believe ATHN must significantly expand support services. Some of these tasks may in fact be "offshored," but given the often sensitive nature and tight-time constraints surrounding point of care (i.e., lab results), we believe the desire to keep these tasks contained at central operations is crucial."

On Wednesday afternoon, athenahealth is trading at about $81.30, down roughly 4.8%.

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