HealthStream fights 'undervaluation' of its stock

Directors approved action during last week's management retreat; analysts back-off criticism

Email | Print By Milt Capps

Bobby Frist

The HealthStream board of directors voted Thursday to repurchase up to $3 million in HealthStream stock, which at Friday's close would have been more than 1 million of the company's outstanding 22.3 million in common stock.

HealthStream CEO Bobby Frist said in a release this morning, "We believe that our stock is currently undervalued and our financial position is sufficient to enable the Company to invest in both continued growth and the repurchase of shares."

Frist said his board's approval of the "share repurchase program reflects our confidence in our ability to execute our strategic plan and ongoing commitment to increase shareholder value."

The announcement appeared to give HealthStream stock a bump: By late morning the Nasdaq offering stood at $2.85, up 4.7 percent, after briefly touching $2.94, versus its previous close at $2.72. In the past year, HealthStream has hit as high as $4.75.

In what may have been a coordinated move, analysts at Avondale Partners issued new guidance on HealthStream this morning, citing the company's repurchase action and maintaining the firm's "market outperform" rating.

Avondale is also sticking with a $4.50 stock-price target for HealthStream, which was lowered earlier this year from $4.75 because of analysts' concerns regarding problems HealthStream was then having in migrating customers to a crucial new technology platform.

The 17-year-old company reported its first full year of profitability in 2005, but has since then several times tested levels below $2.

Ben Green, Avondale analyst, told NashvillePost.com this morning that guidance he issued today on HealthStream does not mention technology-execution concerns Avondale expressed earlier this year, because, he said, "we've always maintained that was a 'hiccup' and not 'business as usual' for those guys — now, we're expecting them to come out of this, this year."

Green said he did not think HealthStream would have difficulty buying shares, and said he does not know when or at what pace the company will execute the purchases.

The HealthStream board's vote came during an annual board-management retreat, on Thursday, according to a company representative. The announcement comes one month ahead of the scheduled Oct. 23 release of HealthStream's third-quarter results.

Today's announcement comes 30 days after HealthStream competitor SumTotal Systems announced a $15 milllion stock buyback.

Another competitor, Saba Software, will later this week report its first-quarter results. The stock of Saba, which is trading this morning above $5, has also experienced a slump from its 52-week high of $7.75 to this morning's $5.05. Saba has for some time been flirting with the $100 million revenue milestone.

Green argues it is difficult to compares HealthStream with such companies, given that HealthStream serves only one vertical market, while Saba and SumTotal serve numerous markets and operate internationally. Nonetheless, as reported by a NashvillePost.com sister publication, HealthStream is in frequent competition with such firms.