Analysts with bull ratings on athenahealth, Inc (NASDAQ:ATHN) are rushing to the company’s defense after David Einhorn’s very public short attack. Baird’s latest report defends athenahealth’s growth targets vehemently while reducing their price target to $175. The report explains that the change in PT has nothing to do with the short seller’s comments and is only based on industry multiples, which have compressed dramatically in the past months. Baird is bullish on athena and believes that it will go on to become much bigger and more successful over the years.

David Einhorn Greenlight Capital AthenaHealth

Athena was recently given five awards by KLAS and crowned as best overall vendor in healthcare technology services. Baird points out that, given the infancy of cloud technology in healthcare services, athenahealth, Inc (NASDAQ:ATHN) is poised to take the lead in this industry as its client base continues to increase.

Lashing out on Einhorn’s short attack

Interestingly, the report vows not to focus on Einhorn’s bear case, but it does exactly that:

“We could issue 66 slides and use buzz words to elicit a dramatic response, while chastising the target for using buzz words. We won’t. And, there are other things that we’re won’t do in this report… We’re not going to pick on charismatic executives or their familial ties, berate TV personalities or analysts, show funny cartoons, videos or graphics, or state the obvious while making it sound groundbreaking.”

Apparently Baird is referring to Einhorn’s mockery of Jim Cramer, who is known to be an athenahealth, Inc (NASDAQ:ATHN) bull. The hedge fund manager also included several comics in his presentation and criticized Jonathan Bush, CEO of athena, in several of his slides. Baird’s report then leads to a point-by-point critique of the hedge fund manager’s short thesis. The analysts say that Einhorn projected opinions as facts in his presentation and compared the company to names which had entirely different business models.

He also said that athenahealth, Inc (NASDAQ:ATHN) is not a cloud-based service or a SaaS, but merely a company implementing BPO, which is business process outsourcing. Baird counters Einhorn’s criticism of athena’s out-sized growth targets (~30% annually):

“We’re not going to say that a mid-teen CAGR is not possible or even realistic. We cover some true BPOs that address a smaller TAM in a tougher market, with less automation and much less scale advantage that are very profitable (and in one case, without even doing the math on the others, immediately think of a company that expanded revenue >40x in 20 years). We even saw our three drug distributors go from ~$20B-$25B of revenue in 1995 to ~$400B in 2015E. If you asked us in 1995 whether a CRO could grow 40x, or if three drug distributors would be on target for $400B of revenue in twenty years, it might have seemed unrealistic, but it happened. Remember, this is a recurring, building model at ATHN, not kill or starve.”

AthenaHealth , favorite short, not a favorite holding

AthenaHealth, Inc (NASDAQ:ATHN) is not a popular stock among hedge fund holdings. According to the year-end report from Goldman Sachs, only 5% of ATHN’s equity cap was held by hedge funds. Additionally, athenahealth is among the most-shorted stocks, with 22% of its market cap out on loan at the end of 2013. However, the company seems very popular among day traders, as its shares were volatile even before Einhorn’s attack. ATHN rose at breakneck speed in February to hit an all-time high of $195. The stock backtracked in the following months, and it closed at $126.78 on May 5, before the shortseller’s presentation.

Baird’s take on Epic Systems versus AthenaHealth

While criticizing athenahealth, Inc (NASDAQ:ATHN)’s approach to offering cloud-based solutions for hospitals, Einhorn said that the standard has already been defined by a Wisconsin-based company, Epic Systems. Einhorn said:

“Epic makes complete software solutions for hospitals, large medical groups, and integrated healthcare organisations, and has emerged as the undisputed winner from the fragmented IT market. It costs anywhere from tens to even hundreds of millions of dollars to install Epic, but this hasn’t deterred the most well?respected hospital CIOs. In fact, there are cities in this country where every major hospital is on Epic, or moving in that direction because of the ease of sharing data.”

Countering Einhorn’s argument, Baird said in their report that undoubtedly Epic Systems is a great setup, but it is certainly not the dominant force in the healthcare IT industry,

“The top 100 HIT companies alone did ~$42B of revenue in 2013 – and that company has been estimated at $1.5B-$2.0B of revenue. By that logic, this dominant, unstoppable force from Wisconsin would have to grow at rates far exceeding any projections on athenahealth, Inc (NASDAQ:ATHN) to eliminate ATHN’s TAM. We might point out that some dominant companies of the past don’t even come up in conversation today or, if they do come up in conversation, it is typically not in a favorable light.”

Remarkably low attrition rates at AthenaHealth

Baird said that athenahealth, Inc (NASDAQ:ATHN) has a very low attrition rate of 4-5%, which proves that its clients like to stick with it. The report said that while Einhorn focused on the four possible customers that athenahealth could be losing to Epic, it is more reasonable to look at what the company’s history has been with its clients. Interestingly, Baird failed to compare athena’s “exceptionally low” attrition rate with Epic’s. Einhorn’s presentation included this little fact: that Epic’s attrition rate for hospital clients is nearly 0%.