Analyst: HealthStream's Recent Gains Suggest Possible Bid

Sunday, 26 Feb 2012 04:04 PM

 

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HealthStream Inc., a provider of online continuing education for doctors, rose as much as 4.3 percent Friday after a Craig-Hallum analyst said the company may be a takeover target because it dominates the market.

HealthStream gained 2.5 percent to $21.91 at 9:44 a.m. New York time after climbing to as high as $22.29. It’s a business without regulatory risk that may enable larger software companies to enter the health-care market, including London-based Reed Elsevier Plc and Santa Monica, California-based Cornerstone OnDemand, said Matt Hewitt, an analyst at Craig-Hallum Capital Group in Minneapolis.

HealthStream surged 30 percent in New York trading on Feb. 22 after the company reported fourth-quarter earnings rose 40 percent from a year earlier and forecast a 21 percent to 25 percent revenue increase for 2012. The stock jump gave the Nashville, Tennessee-based company a market value of five times revenue, placing it in the lower range of valuations within the software-as-a-service market that’s been targeted for acquisitions, Hewitt said.

“A takeover could be the end game, given the attractiveness of the health-care vertical and the market dominance of HealthStream,” said Hewitt, who has a “buy” rating on the stock, by telephone.

The latest software-as-a-service company to be acquired was SuccessFactors Inc. by SAP AG for $3.4 billion, or 7.4 times estimated sales.

Frist Connection

HealthStream’s chief executive officer is Robert Frist, Jr., nephew of former Senator Bill Frist and grandson of Thomas Frist, the founder of HCA Holdings Inc, the largest hospital operator by revenue. HealthStream’s links in the health-care area would be difficult for a company to duplicate on its own, Hewitt said.

HealthStream provides training that helps doctors, nurses and health workers become more efficient and incorporate new technology. The company is growing as the government introduces regulations and standards through the 2010 health overhaul that push electronic records and accountable care organizations.

The overhaul will trim $157 billion in U.S. payments to hospitals through 2019, according to estimates by the Congressional Budget Office.

The company declined to comment, Molly Condra, a spokeswoman said by telephone.

HealthStream’s earnings on Feb. 22 beat analyst expectations and sent shares up the most since 2003 to a record $22.55. The shares retreated 5.2 percent Thursday to $21.38.

“I’m perplexed,” said Vince Colicchio, an analyst with Noble Financial Group in Boca Raton, Florida, who has a “hold” rating on HealthStream. “Nothing really extraordinary happened in the quarter.”

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