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HEALTHCARE POSITION MONITOR Sentiment Investment Ideas - Longs Trade Trend Tail Sentiment Investment Ideas - Shorts Trade Trend Tail Score 1 LONG Score 1 SHORT 6 ATHN athenahealth, Inc. 93 ZBH Zimmer Biomet Holdings, Inc. --- 90 AHS AMN Healthcare Services, Inc. --- 62 MD MEDNAX, Inc. 45 HOLX Hologic, Inc. 24 MDRX Allscripts Healthcare Solutions, Inc. --- Sentiment Long Bench Sentiment Short Bench Score 1 LONG Score 1 SHORT 35 CSLT Castlight Health, Inc. Class B --- --- --- n/a CPHD Cepheid --- --- --- 76 EVH Evolent Health Inc Class A --- --- --- 100 VRX Valeant Pharmaceuticals International, Inc. --- --- --- 82 CERN Cerner Corporation --- --- --- 94 MDSO Medidata Solutions, Inc. --- --- --- 89 ILMN Illumina, Inc. --- --- --- 81 WOOF VCA Inc. --- --- --- 72 ICLR ICON Plc --- --- --- 69 CYH Community Health Systems, Inc. --- --- --- 64 ISRG Intuitive Surgical, Inc. --- --- --- 61 Q Quintiles Transnational Holdings, Inc. --- --- --- 56 CRL Charles River Laboratories International, Inc. --- --- --- 45 DVA DaVita HealthCare Partners Inc. --- --- --- 38 LPNT LifePoint Health, Inc. --- --- --- 29 QSII Quality Systems, Inc. --- --- --- 24 LH Laboratory Corporation of America Holdings --- --- --- 19 HCA HCA Holdings, Inc. --- --- --- 17 PRXL PAREXEL International Corporation --- --- --- 1 DGX Quest Diagnostics Incorporated --- --- --- 1 CPSI Computer Programs and Systems, Inc. --- --- --- DATA SOURCE: FACTSET HEDGEYE 3
RECESSION WATCH CONFIDENCE HEDGEYE 4
RECESSION WATCH JOBLESS CLAIMS HEDGEYE 5
RECESSION WATCH EARNINGS HEDGEYE 6
MD DEAL MULTIPLE ROIC 20% 0% -20% 9.5% 10-year IRR -12.5% 10-year IRR 20% ROIC % (ttm) 19% 18% 17% IRR % -40% 4x EBITDA -60% 6x EBITDA 8x EBITDA -80% 10x EBITDA 12x EBITDA -100% 16% 15% 14% 13% 12% 11% -120% 10% DATA SOURCE: COMPANY FILINGS HEDGEYE 7
HOLX TOTAL PENETRATION % DATA SOURCE: HEDGEYE, MQSA, COMPANY FILINGS HEDGEYE 8
HOLX NTM EV/EBITDA 15.0x EV/EBITDA NTM Average +1 Std Dev -1 Std Dev NTM EV/EBITDA 14.0x 13.0x 12.0x 11.0x 10.0x 9.0x 8.0x 7.0x 6.0x 5.0x DATA SOURCE: FACTSET HEDGEYE 9
HOLX 2016 ESTIMATE REVISIONS Down Unchanged Up Sales Estimates 1 3 2 2,900.0 8 7 7 2,850.0 11 2,800.0 14 15 18 19 19 19 14 14 17 2,750.0 Sales (millions) 10 11 10 2,700.0 6 2,650.0 3 2 2 3 2 2,600.0 DATA SOURCE: FACTSET HEDGEYE 10
HOLX BET AGAINST THE SELL SIDE 20.0% Bearish Bullish Rolling 12-mo Excess Return 14.9% 15.0% 11.7% 10.0% 5.0% 0.0% -5.0% -10.0% -5.3% -7.3% 1.9-2.1 2.1-2.4 2.4-2.7 2.7-3.0 DATA SOURCE: FACTSET HEDGEYE 11
HOLX VALUATION SENSITIVITY OLD FORMAT = $800/SQUARE FT 2016 Sales YoY % NEW FORMAT = $1,300 SQ FT NTM EV/Sales 2.5x 3.0x 3.5x 4.0x 4.5x -5.0% $ 11.2 $ 15.8 $ 20.3 $ 24.8 $ 29.3-2.5% $ 11.8 $ 16.5 $ 21.1 $ 25.8 $ 30.4 0.0% $ 12.4 $ 17.2 $ 21.9 $ 26.7 $ 31.5 2.5% $ 13.0 $ 17.9 $ 22.8 $ 27.7 $ 32.6 5.0% $ 13.6 $ 18.6 $ 23.6 $ 28.6 $ 33.6 Bear Base Bull -65.8% -33.1% 2.5% DATA SOURCE: FACTSET HEDGEYE 12
AHS ORGANIC GROWTH MODEL 35.0% 30.0% 25.0% 20.0% Combined Model AHS: Total Organic Growth YoY % Regression Includes HC JOLTS Layoffs and Discharges 35.0% Employment - Health care YoY % AHS: Total Organic Growth YoY % 30.0% 25.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% -5.0% -5.0% -10.0% -10.0% HEDGEYE 13
HEALTHCARE JOLTS SLOWING 60.0% 50.0% JOLTS: HC Job Openings Rolling 3-Mo YoY % ROC 12/31/14 47.78% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% 12/31/13-28.60% 12/31/15-8.35% DATA SOURCE: BLS HEDGEYE 14
HEALTHCARE EMPLOYMENT PEAK? Rolling 12-mo Healthcare Employment Gains 500 450 400 350 300 250 200 150 100 50 April 2000 - December 2001 19 Months July 2006- October 2007 15 Months April 2014 - Oct 2015 18 Months 0 DATA SOURCE: BLS HEDGEYE 15
HEALTHCARE JOLTS 60.0% 50.0% 40.0% JOLTS: Health Care and Social Assistance - Job Openings y/y growth % 2-Yr Average Rolling 12-mo Average 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% DATA SOURCE: BLS HEDGEYE 16
MDRX FIELD NOTES NORTHWELL No plans to move away from Allscripts due to the enormous amount of capital invested in the system and high switching costs; happy with their products. IT Budget $250 million and capped out in terms of growth. Concerned about the future of Allscripts as there is a big slowdown in spending coming. Limited additional cross-sell potential. Already committed to Soarian for Enterprise Rev Cycle and InterSystems for population health; don't see efficiency in remote hosting. Touchworks and Sunrise NOT integrated on the back end, requires the purchase of dbmotion, which is expensive to implement. Added 3 hospitals over last 18 months on Sunrise through acquisitions for an incremental $3-4 mill in maintenance revenue to Allscripts. IT outsourcing agreement for $80 million a year, $10-20 million a year in software related subscription and maintenance revenue. HEDGEYE 17
MDRX SOFTWARE DELIVERY 40.0% Software Delivery Bookings YoY % 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% DATA SOURCE: COMPANY FILINGS HEDGEYE 18