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Eclipsys: Shining Bright at the Hospital

By David Henry

Hospitals and clinics will be buying more computer software to cut costs and reduce deadly medical errors, says Edward Hemmelgarn, president of Shaker Investments. That's why he's keen on Eclipsys (ECLP), which sells computerized physician order-entry and tracking systems. The company recently made sales to hospitals affiliated with Johns Hopkins, Columbia, and Cornell universities.

Eclipsys' stock is up from 4 in October to nearly 10. It could still double within 18 months, says Hemmelgarn, who owns 5% of the $440 million market-cap company. Hemmelgarn sees Eclipsys making 30 cents a share next year vs. an 85 cents loss in 2003. By 2005, it should make $1 a share. It has cash of $4 a share, positive cash flow, and no debt. The company has shifted to selling software by subscription instead of by license, because customers prefer smaller, periodic payments. Subscription sales mean steady earnings, compared with the jolts from upfront revenue accounting for licenses.

James Kumpel, an analyst at Raymond James Financial (an underwriter in 2001 for Eclipsys) recently raised Eclipsys from sell to neutral. He says the subscription model is helping take business from industry leader Cerner. "We're seeing movement in the right direction," he says.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them. Gene Marcial is on vacation.

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