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Morningstar | No-Moat Allscripts Faces Challenging Near-Term HCIT Operating Environment

Allscripts' strategy of pursuing high-growth areas of healthcare information technology and gaining market share through acquisitions has shaped the firm to be a material player in a highly competitive and consolidating industry. However, lackluster performance from its core products lead us to believe that the firm needs innovation and careful execution to hold its own against vendors like wide-moat Cerner and privately owned Epic Systems. We believe this dynamic will keep the firm from developing any significant long-term competitive advantages and economic moat.We believe the firm's investments in nascent growth areas of HCIT, such as population health, patient engagement, life sciences, and payer markets, will diversify Allscripts’ portfolio and help offset the effects of a maturing electronic health record market. Our main concern about the firm’s strategy has been its core products, which make up about two thirds of revenue, as they are not up to par with Cerner’s or Epic’s in quality or scalability. The firm recently expressed its intention to build up its life sciences and payer businesses, which presents a better growth opportunity than the mature HCIT space. Allscripts has valuable data in several million patient records, but getting a foothold in this space will require serious investment by the company, including potentially an acquisition. Behavioral health and home services provided high growth with the firm's stake in Netsmart, acquired in 2016, but the firm announced an agreement to sell its stake by the end of the fourth quarter of fiscal 2018 for $525 million.Allscripts recently launched a new cloud-based EHR, Avenel. Although it's in the very early stages, we believe Avenel could be an indication of potential improvement in the core product portfolio that will be key to maintaining share and a satisfied client base. The acquisitions of McKesson's EIS (2017) and Practice Fusion (2018) contributed meaningful market share and opened the door to cross-selling opportunities, but productive research and development and successful execution in sales and marketing will be key to maintaining those fragile market share gains.