David Einhorn Presentation At Ira Sohn: Short AthenaHealthVW Staff
David Einhorn is President of Greenlight Capital, Inc., which he co-founded in 1996. Greenlight Capital is a value-oriented investment advisor whose goal is to achieve high absolute rates of return while minimizing the risk of capital loss. Greenlight’s investment philosophy is to combine the analytical discipline of determining fair value with a practical understanding of markets. David Einhorn is Chairman of the Board of Greenlight Capital Re, Ltd. and a Director of BioFuel Energy Corp. (NASDAQ:BIOF). He is the author of “Fooling Some of the People All of the Time: A Long Short Story,” published in May 2008. David Einhorn graduated with a B.A. summa cum laude from Cornell University.
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David Einhorn spoke at the IRA Sohn Investment Conference, also see The Case For Following David Einhorn Into BioFuel Energy. Below are notes from his presentation.
Highlights from David Einhorn’s presentation
David Einhorn now up for the grand finale….
EInhorn’s talking the the bubble basket which he mentioned in his Q1 letter to investors
Einhorn jokes ” I am the last speaker, i’m gonna go way over time. If you’re bored, go home”
5:15 Einhorn says Sell AthenaHealth, Inc (NASDAQ:ATHN). The stock “is simply at the wrong price” and could fall 80% or more.
David Einhorn says that the stock is ‘caught up in a bubble.’ The stock is already down double digits in after hours trading on the pitch by Einhorn.
5:20 Einhorn plays a clip roll of AthenaHealth, Inc (NASDAQ:ATHN) chief Jonathan Bush that makes him look a bit foolish. : ATHN went ballistic in 6 months from Nov. ’12. But it’s been missing estimates, even falling estimates, what is the reason? Einhorn says CEO Jonathan Bush, joking (seriously though) yes he’s part of THAT Bush family”
Einhorn makes fun of Jim Cramer who has been bullish on ATHN. David notes that as stocks increase in price …shares disconnect from fundamentals and jokes that depending on the stock , all of them seem to be at a reasonable in valuation in relation to each other, nothing that other competitors seem to be at bubbly valuations. Einhorn notes further that he does not believe “investors can value disconnected stocks using traditional measures”
5:25: Einhorn believes that these assumptions are too aggressive and likely to prove optimistic.” Very funny presentation by David Einhorn. Einhorn attacks a Morgan Stanley report on ATHN which has a price target of $192/share, compared to the current price (which Einhorn thinks is overvalued) of $126 per share.
Einhorn says that CEO Bush compares ATHN to AMZN, and the CEO thinks of ATHN as a cloud co, yet “his use of the word cloud is somewhat nebulous” Einhorn seems to be attacking Morgan Stanley’s recent report on athena as much as or athena itself.
Below is an excerpt from a April 23rd 2014 Morgan Stanley report on ATHN which Einhorn mocks:
We are upgrading ATHN to OW based on a long growth runway in both its core ambulatory business and expansion into the larger inpatient market. Coordinator Enterprise deals mark an inflection point for ATHN. Our analysis of the hospital market shows a current inpatient TAM of ~$34B, growing to ~$83B by 2030. Feedback from CIOs we met with at HIMSS point to the resonance of the healthcare cloud and growing awareness of ATHN’s platform.
We model ATHN gaining 5% inpatient share by 2030. In the NT we model Coordinator Enterprise revs of $30M/$80M in 2015/16. Our 2014/15 rev estimates of $964M/$1,239M and EPS of $1.42/$1.95 are ahead of cons’ $918M/$1,130M and EPS of $1.31/$1.82 respectively. Core ambulatory business has runway for growth.
We est. the ambulatory TAM at ~$18B currently, growing to ~$45B by 2030 and see ATHN capturing 12% share from current ~3% (on a rev. basis), growing at > 20% through 2018, slowing to a 10-11% rate by 2025 and 6.5% by 2030.
Next catalysts. Add’l Coordinator Enterprise clients, ROI/outcome data from inpatient deals, user conference (4/29 – 5/1), and 2Q14 earnings (mid Jul).
Our $192 PT is based on a 15-year base case DCF. At current levels we think shares primarily reflect the existing ambulatory market opportunity with little value attributed to inpatient growth. We model inpatient penetration contributing $72/share or ~38% of total value; with ambulatory at $120/share. PT implies an= 8.0x forward EV/Sales with Bull/Bear of $301/ $82. Where could we be wrong. Early Enterprise deals fail to generate ROI; ATHN fails to adopt rev model as reimbursement changes from FFS to risk; Cerner & Epic eat into ATHN’s core ambulatory share.
Einhorn says Privately-held Epic is lapping competitors like $ATHN in hospital business, other customers like CVS and that hospitals aren’t looking for a best in breed solutions. ATNH is FAR from being the backbone of the Internet, says Einhorn.
5:40: Einhorn jokes that now comes the bear case and says $7 a share is more like it than $72 for ATHN. Einhorn’s optimistic case for $ATHN at $50 a share.
Einhorn says “the thing about bubble stocks is that the reason to own them is that they are going up. When they stop going up….” and that there there will always be high risk, low return things to do that will make healthcare better.”