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McKesson Corporation (MCK), Cerner Corporation (CERN), athenahealth, Inc (ATHN): These High-Flying Stocks Could Be Riskier Than You Think

A recent report from Harvard School of Public Health, Mathematica Policy Research, and the Robert Wood Johnson Foundation stated that in 2012 around 40% of physicians in office practices had basic EHR systems. That leaves a large number of doctors who have not yet implemented EHR technology.

Gauging the temperature
I suspect that there is risk for several of the EHR companies, but it’s due more to lofty valuations rather than a lack of customers to buy their products. One of this year’s biggest EHR gainers, athenahealth, now seems to be priced for perfection. Its forward price-to-earnings multiple stands at a sky-high 79. Any hint of a problem could result in a stock meltdown.

Most of the others also carry relatively pricey valuations. Cerner Corporation (NASDAQ:CERN) has a forward P/E of 30 with five-year annual growth projected at 18%. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) isn’t significantly better, with a forward multiple of 24 and estimated annual growth of 10.5%. Quality Systems has a forward P/E of 21, but analysts peg its yearly earnings growth at less than 10%.

Of the group, McKesson Corporation (NYSE:MCK) is the safest pick in my view. The company has a forward multiple of just over 13 and growth projected at 13% per year. McKesson focuses primarily on pharmaceutical distribution, which contributes a steady-but-boring revenue stream. Its technology division accounts for less than 3% of total sales — but more than 20% of the company’s earnings.

If you’re looking for a possible acquisition play, Quality Systems could be a good choice. The EHR vendor might be looking to sell out sometime in the near future after a change in its board lineup. If the company does put itself on the auction block, expect shares to surge. Health care technology is a market that can still get pretty hot.

The article These High-Flying Stocks Could Be Riskier Than You Think originally appeared on and is written by Keith Speights.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Athenahealth, McKesson Corporation (NYSE:MCK), and Quality Systems.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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