Will Ebix Earnings Help Its Stock Keep Up With Quality Systems and Allscripts?

Ebix (EBIX -3.28%) will release its quarterly report on Friday, and investors are still feeling the pain of numerous troublesome issues from earlier this year, including investigations by federal government officials and shareholder class action lawsuits. Yet even as many outstanding issues remain unresolved, Ebix needs to show that its business can perform well or else the gloomy mood among investors will only worsen.

The fundamental underpinnings of Ebix's business model remain sound, as it seeks to help insurance companies operate efficiently by providing technology to help them manage data exchanges, broker systems, and operational support for back-office work. Given the big changes that the insurance industry has had to deal with lately, that should by all accounts be a growth industry, and shares of related health-care software companies Quality Systems (NXGN) and Allscripts Healthcare Solutions (MDRX -2.47%) have moved higher over the past year because of the potential in the industry. But will all the distractions hurt Ebix's chances to take advantage of favorable trends? Let's take an early look at what's been happening with Ebix over the past quarter and what we're likely to see in its report.

Stats on Ebix

Source: Yahoo! Finance.

Can Ebix survive all its controversy?
In recent months, analysts have cut their views on Ebix earnings, reducing their third-quarter estimates by a nickel per share and their full-year 2014 projections by 20%. The stock has recovered somewhat, rising 13% since early August but remaining far below its levels from earlier this year.

Ebix didn't paint a rosy picture for investors in its second-quarter report, as revenue rose 7% but net income dropped by more than a quarter. Because of legal costs and other unusual expenditures, operating cash flow fell by about half. CEO Robin Raina acknowledged "a few distractions in the quarter" but still had high expectations for future business growth.

Still, Ebix is having trouble getting past its recent controversy. In September, it responded to a negative blog post from Gotham City Research, arguing that the post's contents were misleading and inaccurate. Yet with negative sentiment pointing to potential problems with the company's financials, it's impossible for Ebix to prove the negative, forcing it to wait until investigations are complete and hopefully clear it of any possible wrongdoing.

From a fundamental standpoint, though, Ebix still has a huge opportunity. Interest in automating insurance operations should increase as insurance markets get more complicated. Just as Allscripts and Quality Systems have benefited from the trends toward greater automation of medical records in light of health-care reform, so too should Ebix be able to capitalize on the need for insurance companies to adjust their internal offerings to reflect new regulations and requirements.

In the Ebix earnings report, watch for any sign that the company is getting closer to resolving its open legal and regulatory issues. The stock could soar once Ebix gets its troubles behind it, but until then, investors are likely to remain too nervous to push the stock up very far.

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