Stifel Says Computer Programs & Systems Business Model Uncertainty Creates Risk, Initiates At Hold

In a report published Monday, Stifel analyst Steven Rubis initiated coverage of Computer Programs & Systems, Inc. (NASDAQ: CPSI) with a Hold rating and no assigned price target as the company's fourth quarter results suggested the business model faces uncertainty.

"We are uncertain of CPSI's place in an environment driven by performance-based technology investment," Rubis wrote. "In our view, CPSI's products are primarily related to facilitating compliance with government mandates stemming from the Meaningful Use incentive program. A major platform weakness is the lack of software-enabled services such as population health management."

Rubis said that small, rural and community hospital market represents the "soft underbelly" of the hospital electronic health record (HER) market that is "ripe for disruption." However, the analyst added that athenahealth, Inc (NASDAQ: ATHN)'s entry into the market will prove disruptive given its analytically focused cloud-based products that offers value-added services missing from CPSI such as population health management.

Finally, Rubis stated that the company's move to increase the stock's annual dividend 11.8 percent in signals a belief that fiscal 2015 represents a temporary setback as revenue growth is poised for fiscal 2016. The analyst argued otherwise, stating that looming competition, a shifting investment environment and Meaningful Use Stage 3 requirements makes fiscal 2016 growth uncertain and calls in to question the company's ability to maintain a 95 percent plus dividend payout ratio in a limited growth environment.