Citi Downgrades MedAssets To Hold Following Disappointing Earnings

Citi is downgrading MedAssets MDAS to Hold from Buy following Q4 results that were very disappointing, largely due to company-specific concerns. MedAssets reported Q4 net operating EPS of $0.18, vs. our/Street $0.22. Nearly every line item was below expectations, with lower profitability & deteriorating earnings quality. MDAS also lowered near & long term revenue and profit growth expectations, and announced a reorganization of its RCM segment. MDAS plans to spend more to try to spur growth, which should further pressure earnings. MDAS failed to achieve several performance based targets contributing to the revenue & earnings miss. Mgmt attributes this to a mix of delays, overstaffing to ensure meeting targets, and some simply not being met. Citi does not expect most of these fees will be recovered in future periods. Several of the firm's RCM clients moved from service heavy transformational-type deals to tech-only purchases, leading to a ~$4M shortfall made worse by the co's then outsized infrastructure. MDAS guided investors to a more "conservative" approach due to heightened competition & demand for more arduous terms from hospitals. Citi lowered its PT from $26 to $20 MDAS closed Thursday at $21.32