HCAT - Health Catalyst: Riding A Steady Trend

2023-03-15 12:09:15 ET

Summary

• Health Catalyst, Inc. has some strong market trends pushing it forward, and with a strong market presence I think the future seems very bright.
• What propels Health Catalyst's top-line growth is its unique product offering, an impressive record in mergers and acquisitions, and its potential to expand its customer base.
• What drives Health Catalyst's top-line growth are its unique product offering, successful track record of mergers and acquisitions, and the potential to expand further within its current user base.

Investment Thesis

Health Catalyst, Inc. ( HCAT ) is a healthcare data analytics company that provides healthcare organizations with insights to help them make better decisions. Despite the current share price, I believe that Health Catalyst, Inc. is undervalued given its unique offering and growth drivers. One of the key factors driving growth is the shift in the healthcare industry from volume-based to value-based payment models. This shift has put pressure on healthcare providers to become more efficient and effective in their delivery of care, which has created a demand for Health Catalyst's solutions.

Another growth driver for the company is the increasing complexity of healthcare data. Healthcare organizations are generating more data than ever before, and this data is becoming more difficult to manage and analyze. Health Catalyst's platform is designed to help organizations manage and analyze this data, which is a key driver of growth for the company.

In conclusion, Health Catalyst is a healthcare data analytics company that is well-positioned to benefit from the shift to value-based payment models, the increasing complexity of healthcare data, and its successful M&A strategy. The company's path to positive profit levels is also a good catalyst for valuation rerating. Therefore, I believe that Health Catalyst is worth more than the current share price and is a good investment opportunity for investors looking for long-term growth potential.

Market Challenges

The use of data and analytics in healthcare organizations is undergoing significant changes, driven by multiple challenges and market dynamics. This confluence of factors presents a unique opportunity to enhance healthcare's clinical, financial, and operational quality. One of the primary motivators for change is the economic shift brought on by the adoption of value-based care ((VBC)). Healthcare organizations are facing economic uncertainty and complexity due to rising costs and the transition to VBC models, which can be alleviated through the right application of data and analytics.

In addition to economic challenges, healthcare organizations are also dealing with a massive explosion of data. The adoption of electronic health records ((EHR)) has resulted in a vast amount of healthcare data being collected and stored digitally. Adding in socioeconomic, genomic, and telehealth data further complicates matters. Healthcare-specific data, logic, and analytics capabilities are difficult to implement in legacy software, which is why previous attempts have failed. Many hospitals and other healthcare facilities have attempted to create their own solutions, only to realize that doing so would be prohibitively expensive.

Moreover, the healthcare industry faces increased regulation, making it even more challenging to collect, store, and use data effectively. Disease classifications and treatment methods are also dynamic, requiring ongoing updates to data and analytics capabilities. Traditional EHR providers lack the tools to efficiently compile and derive analytics insights from the many different data sources.

In conclusion, healthcare organizations must adapt to these challenges by adopting advanced data and analytics capabilities. Doing so can help them overcome economic uncertainty, handle the explosion of healthcare data, and comply with increasing regulations. While the process of implementing data and analytics solutions is complex, the potential benefits make it a worthwhile investment for healthcare organizations. Therefore, it is recommended to consider healthcare organizations that are embracing data and analytics as potential investment opportunities.

The Health Catalyst, Inc. Edge

Health Catalyst is a company that I believe is highly undervalued in the healthcare industry. The company's offering is highly differentiated, and it has developed a solid go-to-market strategy to expand its customer base and keep its current customers satisfied. One of the critical factors that have contributed to HCAT's success is the integration of data feeds from all sources within a healthcare system, which is crucial to the success of any data operating system.

The company's data operating system, which is known as HCAT DOS, has an open, flexible, and scalable architecture, making it easy to integrate new data feeds or use cases into an existing system. This feature has made HCAT's platform an attractive option for healthcare systems looking to implement data operating systems that can help them improve their operations, enhance patient outcomes, and reduce costs.

One of the things that make HCAT stand out is its strong track record in M&A. The company has been able to acquire businesses that can be integrated into its platform, allowing it to increase its offerings to customers. This has helped the company to keep up with the rapidly changing healthcare industry and has made it a reliable partner for healthcare organizations looking to adopt new technologies.

In my opinion, the company's unique offering, coupled with its solid go-to-market strategy and track record of successful M&A, are growth drivers for the company. Furthermore, there is a clearer path today for HCAT to reach positive profit levels, which is a good catalyst for valuation rerating. In conclusion, I believe that Health Catalyst, Inc. is a great investment opportunity, and investors should consider buying shares in the company.

Risks

One major risk is the highly competitive nature of the healthcare technology industry. Health Catalyst, Inc. faces competition from established players such as Cerner Corporation and Epic Systems, as well as emerging startups. These competitors may offer similar or more advanced products, services, or pricing models, which could lead to decreased market share or reduced profitability for HCAT.

Additionally, HCAT's financial performance is highly dependent on the healthcare industry's continued adoption of value-based care models. Any changes in regulations, reimbursement policies, or political climate could impact the demand for HCAT's products and services, which could in turn negatively affect the company's revenue and profitability.

HCAT's aggressive acquisition strategy also poses a risk. While Health Catalyst, Inc. has a strong track record of integrating acquisitions, any missteps in the acquisition process could lead to financial losses, operational disruptions, and harm to the company's reputation.

Valuation and Conclusion

When evaluating an investment in Health Catalyst, Inc., it's important to consider the company's valuation relative to its peers in the healthcare industry. Currently, Health Catalyst's valuation is trading at a discount compared to other healthcare technology companies, despite having a unique and differentiated offering in the data and analytics space.

For instance, based on forward price-to-sales multiples, Health Catalyst is trading at a discount compared to its peers such as Livongo, Teladoc, and Veeva Systems. While this may suggest that the market is undervaluing Health Catalyst, it is important to keep in mind that the company is still facing risks such as potential changes in reimbursement models and increasing competition in the healthcare technology space.

However, Health Catalyst, Inc.'s recent rebound and improved guidance provide a positive outlook for profit growth. While it's important to take a cautious approach when projecting growth, there is potential for the company to continue improving profitability, which could lead to a rerating of the valuation. Based on current data, it's unlikely that the market will attach a higher multiple, but there is a path for valuation to reach the historical average of 5.5x forward revenue.

In conclusion, Health Catalyst, Inc.'s unique offering and potential for improved profitability make it an interesting investment opportunity. Therefore, I will be rating Health Catalyst, Inc. a buy, as I think there are clear market trends and an advantage to the company that could be hard to find elsewhere.

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