A Hedge Fund Really Likes Allscripts Healthcare

At the end of September, Healthcor Management’s largest 13F position by market value was its 14 million shares of Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) (check out more of their stock picks). Since then, the fund- which invests the majority of its capital in healthcare- has increased its stake to close to 16 million shares, giving it 9.3% of the outstanding shares of the provider of healthcare software and information services. Healthcor is managed by Tiger Cub Arthur Cohen and Joseph Healey, who had previously worked together at billionaire Steve Cohen’s SAC Capital Advisors.

According to the company’s most recent 10-Q, revenue was about flat in the third quarter of 2012 versus a year earlier, as lower sales of systems offset generally higher revenue in Allscripts’ other segments. Operating income was down, though this was mostly due to an asset impairment charge and an increase in research and development expenses (which could arguably be considered an “investment” for a technology company). However, Allscripts recorded high interest expenses and as a result reported a pretax loss. Pretax income would have been positive without either the charge or the increase in R&D, though even if we ignore both the number would be down significantly from Q3 2011.

Allscripts Healthcare Solutions Inc’s stock price has reflected the company’s troubles, down 51% in the last year. Between this and recent financial performance, the trailing P/E is 34. That is high, though there should be some improvement in net income as long as the company does not have to record any more charges. Wall Street analysts seem to be expecting much better results in 2013, as the forward P/E is 11. That might be a good price for a company seeing no growth on the top line, but we’re skeptical that it can hit the analyst target to get to that point.

Allscripts Healthcare Solutions Inc was one of the five largest positions in Kingstown Capital Management’s 13F portfolio, with the fund owning 2.5 million shares at the end of the quarter (see more of Kingstown’s favorite stocks). Billionaire David Shaw’s D.E. Shaw nearly doubled the size of its own stake in the company to a total of 2.7 million shares (find more stocks D.E. Shaw owned).