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Patrick Dalton of J.W. Burns & Company provides the following stock idea on Medical Manager (MMGR 23). Below is the write up.


Medical Manager provides physician practice management software for physician groups. This software helps with certain aspects of the business such as billing, scheduling and accounting. There has been a trend in the industry for physicians to consolidate their practices and move into groups of physicians. Medical Manager will directly benefit from this trend. They have about a 25% share of the market.

When someone files a lawsuit against a company, it can sometimes have a drastic effect on their shares. This is what happened with Medical Manager. On August 5th of this year, a class action lawsuit was filed against Medical Manager. Their shares immediately sank from $26 down to $20 on the news. According to the complaint, they sold licenses for non-Year 2000 compliant software programs that would not be functionally operable after December 31, 1999. Their latest software version, Medical Manager Version 9.0 was released in November 1997 and is Year 2000 compliant. Previous versions of their software were not Year 2000 compliant. Medical Manager in a statement said, "This lawsuit is without merit and we intend to vigorously defend against the suit."

Regardless of the outcome of the case, Pat is still very comfortable about the outlook for the company

One person who is still very bullish on Medical Manager is Patrick Dalton of J.W. Burns & Company. He does not see the lawsuit as a big issue for the company. "Apparently some physicians who recently purchased the software are unhappy about the fact that they are required to pay for an upgrade in order to become year 2000 compliant." He argues, "At what point can people say they should no longer have to pay for an upgrade? Clearly physicians who purchased version 8.0 when it was originally released can't make that claim. Version 9.0 also offers many product features other than begin year 2000 compliant." Regardless of the outcome of the case, Pat is still very comfortable about the outlook for the company. He points to the release of their electronic data interchange (EDI) services.

Currently, most physicians file medical claims to insurance companies manually. Medical Manager has implemented an EDI in their software. EDI allows physicians to save both time and money because claims can be filed electronically using this system. Pat mentions that the market for software upgrades to the EDI platform will generate substantial revenues going forward.

Pat has been purchasing the shares of Medical Manager during the current weakness of their stock. He views it as a tremendous buying opportunity and believes they can grow earnings at 30% annually over the next 3 years. Medical Manager is expected to earn $0.75 this year and $1.00 in 1999. His target is the mid 30's within the next 12 months.

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