did anyone post this?:
HLTH: UPDATE FROM THE DEUTSCHE BANC ALEX. BROWN HEALTH CARE
CONFERENCE--MARKET PERFORM
Deutsche Banc Alex. Brown - US Equities
Conan Laughlin
May 11, 2000
Laughlin, Conan 617-261-3722 05/11/2000
Deutsche Banc Alex. Brown
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HEALTHEON/WEBMD CORPORATION [HLTH] "MKT. PERFORM"
Update from Deutsche Banc Alex. Brown's Health Care Conference
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Date: 05/10/2000 EPS 1999A 2000E 2001E
Price: 16.63 1Q (0.21) (0.42)A (0.23)
52-Wk Range: 126 - 16 2Q (0.18) (0.34) (0.22)
Ann Dividend: 0.0 3Q (0.17) (0.29) (0.20)
Ann Div Yld: 0.00% 4Q (0.48) (0.24) (0.17)
Mkt Cap (mm): 2,993 FY(Dec.) (1.18) (1.29) (0.82)
3-Yr Growth: 50% FY P/EPS NM NM NM
CY EPS (1.18) (1.29) (0.82)
Est. Changed No CY P/EPS NM NM NM
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Industry: E-HEALTH CARE
Shares Outstanding(Mil.): 180.0
Return On Equity (1999) : 0.0%
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HIGHLIGHTS:
- We hosted a dinner last night at the Deutsche Banc Alex. Brown Healthcare
Conference with senior members of the Healtheon/WebMD management team.
- Management participants included Jeff Arnold (CEO) and Rob Draughon (EVP,
business development), as well as Fred Goad (Chairman of Envoy).
- We came away from the meeting feeling generally more bullish on the stock
in terms of a near-term trading opportunity.
- At the margin, we believe: 1) concerns related to the HMO consortium
(MedUnite) are overblown, and 2) visibility is improving on HLTH's gross
margin expansion.
- Key dates on the horizon include a 5/24 Hart-Scott Rodino ruling on the
Medical Manager/CareInsite merger and a 5/26 waiting period expiration on
the DOJ's extended review of the Envoy acquisition.
DETAILS:
HMO CONSORTIUM FEARS ARE OVERBLOWN
We came away from our meeting with Healtheon/WebMD's management team
feeling that the recent concerns related to the HMO consortium (MedUnite)
are overblown. We believe concerns stem from the notion that the
consortium's payors may attempt to bypass the Healtheon/Envoy transaction
processing network to "go direct" to physician, pharmacies, hospitals,
labs, etc. to electronically process administrative and clinical
transactions. Our belief is that the cost/benefit to the HMOs (individually
and collectively) will not justify switching out of the Healtheon/Envoy
transaction processing network. Also, we believe the coordination
challenges inherent in such a consortium effort are significant.
IMPROVED VISIBILITY ON GROSS MARGIN EXPANSION
We were somewhat disappointed by the relatively low gross margin in 1Q00
(9.9%) given the significant revenue contribution from advertising/e-
commerce fees in the quarter. We expressed these concerns to management at
our dinner last night, and encouragingly, came away with the sense that
gross margins are likely to show solid sequential improvement in the second
quarter. Our model assumes 15% gross margins in 2Q00 and we would view
upside to this figure as an important catalyst to the stock. The source of
the gross margin upside is likely to be continued strength in the
advertising/e-commerce revenues (recall the company has $450 million in
advert/e-comm backlog), as well as a continued migration of the company's
transaction processing business to the Internet.
CLOSING ENVOY AND MEDICAL MANAGER/CAREINSITE REMAINS KEY
We continue to believe closing the Envoy acquisition is a key near-term
catalyst to HLTH shares. The company complied with the DOJ's second request
for information related to the Envoy acquisition, and the expiration of the
waiting period is Friday 5/26. No shareholder vote is required, and the
terms again call for HLTH to issue 35 million shares and $400 million in
cash to Envoy's parent, Quintiles Transnational. The chemistry between Jeff
Arnold and Fred Goad is excellent and our sense is that integration between
the two companies is progressing rapidly on the assumption that the DOJ
will approve the merger. We also expect HLTH to receive notification on
Hart-Scott Rodino clearance on the Medical Manager/CareInsite acquisition
on Wednesday, 5/24. We believe this is another potential near-term catalyst
to the stock. |
