Allscripts Shakeup Shakes Down Shares

Allscripts (NASDAQ: MDRX  ) now has a new CEO, but it's the same old story for the stock. Shares sank more than 16% after the beleaguered health-care information services firm announced Paul Black as its new president and CEO effective immediately. The stock has steadily declined for most of 2012.

Topsy turvy
Black was already on Allscripts' board, and his experience with other health care technology companies runs deep. He was with Cerner (NASDAQ: CERN  ) from 1994 to 2007 serving as chief sales officer for much of his tenure there and later moving into the COO role. He also has been a director of Haemonetics Corporation  (NYSE: HAE  ) , which sells blood-management systems. Black has been an executive with private equity firm Genstar Capital since January 2011.

He replaces Glen Tullman, who led Allscripts since 1997. Tullman's recent time with the company has been tumultuous. The 2010 acquisition of Eclypsis didn't go smoothly. Earnings have fallen well below expectations. Several members of Allscripts' board of directors resigned earlier this year. The company fired its chairman and CFO. For months, several large investors have been calling for Tullman's ouster as well. 

Why did the market react so negatively to another shakeup that quite a few wanted and many expected? For one thing, the executive shuffle reinforces the reality that Allscripts is a company adrift. The more important answer, though, probably relates to the following statement slipped into the new CEO announcement: "In addition, the Company announced that the Board has formally concluded its evaluation of strategic alternatives."

This essentially means that Allscripts is no longer looking to go private. If it doesn't go private, shareholders are stuck with the mess that the company faces. Recovering from that mess could take a while. Many investors who had probably hoped for a decent deal from a private buyer decided to throw in the towel. That's the most likely story, at least.

Black magic?
What's next for Allscripts? It will depend largely on whether Paul Black can work the same kind of magic that Cerner experienced over the last two decades. While Allscripts and Cerner operate in the same industry, Cerner boasts a forward P/E multiple over 28. Allscripts lags far behind with a forward P/E of 10.5. Even beat-down Quality Systems (NASDAQ: QSII  ) has a much higher forward P/E of 14.7.

Some investors might think Allscripts could be a bargain at its current price. I wouldn't be too hasty to jump on board this ship, though. Even if the new management team can steer the ship into smoother waters, it will likely take a while.  For now, Allscripts has a boatload of problems to fix.

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