Better Buy: Veeva Systems Inc. vs. athenahealth, Inc.

It provides cloud-based software to healthcare companies. And it has a track record of strong revenue and earnings growth. Which company is it? Veeva Systems (NYSE: VEEV) is a correct answer. So is athenahealth (NASDAQ: ATHN).

Veeva Systems has been the better-performing stock so far in 2018. But which of these two healthcare technology stocks is the better choice for investors now? Here’s how Veeva and Athenahealth compare.

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The case for Veeva Systems

Veeva Systems focuses primarily on providing cloud-based software to the life sciences industry, including customer-relationship management (CRM), content management, and quality management systems. What’s the main reason to buy Veeva stock? I’d say it’s the company’s excellent growth prospects. There are three key ways that the company should be able to achieve strong earnings growth in the years to come.

First, Veeva has plenty of room to grow in gaining new customers in its core life sciences market. Even though the company claims over 600 customers, including some of the biggest drugmakers in the world, Veeva should be able to continue winning additional customers. The company thinks that the total addressable market for its two primary revenue-generating products, Commercial Cloud and Veeva Vault, is more than 10 times greater than its current sales.

Second, Veeva should be able to get existing customers to adopt more of its applications. The Veeva Vault platform, for example, includes more than a dozen applications. Currently, existing Veeva customers use an average 1.97 Veeva Vault products. Veeva also continues to introduce new products, with the company’s management team expressing significant enthusiasm in the Q1 earnings conference call for Nitro, a new commercial data warehouse for the life sciences industry.

Third, there’s a tremendous opportunity for Veeva to expand beyond its core life sciences market with its quality management software. Veeva began moving into additional markets in 2016. The company now claims a growing list of nonhealthcare customers, including a large global consumer packaged goods company, three chemical companies that rank among the top 30 largest in the world, and a rapidly growing skincare company.

Veeva thinks that the total addressable market for its quality management products could exceed $1 billion annually. Much of this market is in highly regulated industries other than healthcare.

Wall Street analysts project that Veeva will increase its earnings by an average annual rate of nearly 18% over the next five years. While that’s well below the company’s growth in previous years, it’s still quite strong. And that projection could underestimate Veeva’s potential in gaining new customers in other industries.

The case for Athenahealth

Athenahealth provides cloud-based software to healthcare providers, primarily physicians and hospitals. The investing case for Athenahealth is similar in some ways to Veeva, but different in others.

Like Veeva, Athenahealth should enjoy strong earnings growth in the coming years. Wall Street expects even stronger earnings growth for Athenahealth, with a consensus estimate of nearly 24% annual earnings growth over the next five years.

The company anticipates continued momentum in its core market of providing solutions to physicians. However, Athenahealth should be able to achieve even more growth by providing additional solutions to hospitals, ancillary healthcare providers, employers, and payers.

Epic and Cerner together claim roughly 57% of the hospital market. Athenahealth thinks it can win over many of the hospitals at the lower end of the market that haven’t implemented these larger systems. Based on the company’s track record, that seems like a good assumption. In 2016, for example, Athenahealth won 46% of purchasing decisions made by stand-alone acute community hospitals.

But there’s also another reason that investors might want to buy Athenahealth stock: The company itself is for sale. There had been speculation in recent months that Athenahealth could be on the block to be acquired. However, one key potential impediment to a deal was the vision that CEO Jonathan Bush had for the company.

That’s not a factor anymore. On Wednesday, Athenahealth announced that Jonathan Bush was stepping down effective immediately. Bush faced allegations that he assaulted his then-wife 13 years ago and that he engaged in inappropriate office behavior.

With Bush’s departure, Athenahealth’s board of directors said that it had “initiated a process to explore strategic alternatives.” These strategic alternatives include a sale or merger with another company.

Better buy

There’s a possibility that a bidding war for Athenahealth could drive up its share price in the near term. The stock is also more attractively valued than Veeva Systems right now. Does that make Athenahealth the better buy? Not necessarily.

I think Veeva has a slight edge over Athenahealth for one key reason: It doesn’t have strong competition like Athenahealth does. Also, there’s a possibility that Athenahealth won’t fetch as high of a price tag as some think it will. Finally, I prefer investing in stocks that I can own for the long run. That’s an option with Veeva Systems, but it might not be with Athenahealth in light of recent developments.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Athenahealth and Veeva Systems. The Motley Fool recommends Cerner. The Motley Fool has a disclosure policy.

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