Wednesday, June 1, 2011

Healthstream ( Nasdaq - HSTM ) -- Simulation Launch on Schedule

Healthstream (HSTM $12.50) appears on track to produce excellent on target Q2 results.  The company continues to gain market share in the health care education industry.  Healthstream provides an Internet platform that lets hospital workers study instructional material at their convenience, unlike competitive offerings that rely on classwork, books, and compact disks.  The computer format also enables hospitals to develop proprietary courses which they can use internally or make money from by licensing them to outside users.  Healthstream currently serves 40%-45% of the U.S. market.  It doesn't operate overseas.  The company also has a research arm that conducts surveys to help hospitals measure performance and customer satisfaction.  That segment has rebounded following a beefed up marketing effort that was implemented last year.  We continue to estimate full year earnings (excluding stock option expense) will reach $.30 a share (+30%) in 2011 on sales of $80 million (+22%).

Simulation could be the wave of the future in health care education.  Last year Healthstream formed an equally owned joint venture with Laerdal Medical, the industry leader in medical mannequins.  The companies have begun to computerize those models and link them up to the Internet.  Students will get measurable feedback on how well they perform different techniques.  That could improve performance (quantifiable data) and speed up class work (instructors won't have to make every observation).  The companies have developed authoring systems and related support tools which experts now are using to develop specific courses and applications.  The commercial rollout is expected to begin this year.  As the inventory of simulation products expands revenues promise to pyramid higher, bolstering recurring revenue and income growth well into the decade. 

Meantime, the core business promises to keep expanding.  Further market share gains are likely.  The number of hospital workers may rise in future years, as well, fueled by government regulation.  And compliance rules may force workers to take more courses, and get certified more frequently.  We estimate 2012 earnings will reach $.40 a share, bolstered to a modest extent by the high potential simulation line.  (Healthstream will split revenue and earnings 50-50 with Laerdal.)  That venture could open up the international market over the long haul, since Laerdal is well established outside the U.S.  (Please click on the "labels" button below to bring up all the reports on file about the company.)

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