Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) has the highest valuation among the three. The company is trading at $15.50 per share, with the total market cap of $2.7 billion. The market values Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) at 28.70 times its trailing EBITDA. Allscripts had a quite diverse customer base including 180,000 physicians, 1,500 hospitals,10,000 post-acute facilities and 27,000 individual post-acute providers. Several months ago, the company just bought two health management software businesses, Jardogs and dbMotion. These acquisitions were in the company’s plan to refresh its product portfolio and to retain its customers. With these two acquisitions, Allscripts expected to have a low EPS in 2003 but a much higher EPS in 2014.
McKesson Corporation (NYSE:MCK) has the lowest valuation of the trio. At $118.60 per share, it is worth $26.9 billion on the market. The market values McKesson Corporation (NYSE:MCK) at nearly 10 times its trailing EBITDA. McKesson generated most of its revenue, $105.5 billion, 86.16% of the total fiscal 2013 revenue, from the U.S. pharmaceutical distribution and services segment. The company reported that it had the market-leading positions, No. 1 and No. 2, in all the markets it serves. Looking forward, McKesson will focus its efforts on the higher-margin and higher-growth business areas to deliver steady growth for the long run. In the period of 2007-2013, it had used around $21 billion, including $8.8 billion in acquisitions, $2.6 billion in internal capital spending, $0.9 billion in dividends and as much as $8.7 billion in share repurchases. For the full year 2014, McKesson expected to generate around $7.90 to $8.20 in 2014 adjusted EPS, with the operating cash flow of $2 billion.
What I like about Quality Systems is its highly profitable operations. Among the three, it enjoyed the highest operating margin and the highest return on invested capital (ROIC). In the past 12 months, the operating margin and ROIC of Quality Systems came in at 19% and 14.2%, respectively. McKesson ranked second with 2% operating margin and 10.3% return on invested capital. The profitability of Allscripts is the lowest among the three, with only 1% in operating margin and -1.59% in ROIC.
My Foolish take
Income investors might like Quality Systems because of its juicy dividend yield at 3.6%. But its payout ratio is quite high, at 97%, meaning that it only retained 3% of its earnings for business reinvestment. Nevertheless, Quality Systems still seems to be a relatively good pick among its peers with the conservative balance sheet, a reasonable valuation and the highest level of profitability.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends McKesson and Quality Systems. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Is Quality Systems a Good Buy After Being Upgraded? originally appeared on Fool.com is written by Anh HOANG.
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