Morgan Stanley Ignores Einhorn, Remains Positive On Athenahealth, Inc

Nearly seven days after David Einhorn announced his short attack on Athenahealth, Inc (NASDAQ:ATHN), a Morgan Stanley report doesn’t mention the incident in its May 12 research note on the stock.

Athenahealth: Morgan “overweight,” notes potential for cost savings in sales, R&D

Athenahealth morgan stanley performance

The report, which has Athenahealth, Inc (NASDAQ:ATHN) as an “overweight” in the portfolio, noted that “Steady state margins reflect the underlying earnings power of a mature company no longer investing in growth, characterized by lower R&D and sales & marketing spend.”  Although the research note “do not expect it to reach maturity any time soon,” it did say that “hence our 2030 DCF horizon we think a good starting point to understand Athenahealth’s potential is to know where it is coming from.”

On May 8 ValueWalk had reported 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.

Morgan Stanley appears to be coming to the defense of Athena and its vivacious CEO John Bush, who called Athena “the greatest hope for our country.”

“I am absolutely sure Athenahealth, Inc (NASDAQ:ATHN) is a $1,000 per share stock,” Bush said as he boiled over with excitement on the CNBC set recently.  “I have no idea when it gets there,” he later qualified, as the stock traded off its bubble high near $200 a share to exchange hands near $108 in early morning trading.  “I don’t know anything about valuations, so for all I know (Einhorn) is right,” Bush later added.

Morgan Stanley notes stock with optimism

Athenahealth morgan stanley sales savings

The Morgan Stanley report predicted it could reduce its sales force by 70%-85%, yet this stands in contrast to Bush, who said in the CNBC interview he was seeking to add head count in the sales department.  “A closer look at R&D and sales & marketing highlights some margin expansion opportunity,” the report said. “Athenahealth, Inc (NASDAQ:ATHN) top line is growing ~30% with ~56% of reported R&D expense spent on growth initiatives and the remainder allocated towards maintenance/productivity enhancement.”

Where could they be wrong?  Morgan Stanley points to a key issue, that “if maintenance R&D as a percent of revenues increases over time, Athenahealth, Inc (NASDAQ:ATHN) is unsuccessful in scaling its business or garnering incremental market share, Sales rep productivity decreases as growth matures, G&A & GM leverage not achieved with scale.”


About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)