Piper Jaffray downgraded Quality Systems (QSII ) to market perform from outperform, explaining that the stock price is overvalued and the software company won't be able to keep up its previous pace of growth.
Quality Systems, a subsidiary of NextGen Healthcare Information Systems, sells software that helps medical and dental groups automate their administration.
Analyst Sean Wieland says the company is trading at 40 times his calendar year 2006 earnings per share estimate, a 44% premium to its peer group. Given the analyst's current assumptions, he sees tough comparables ahead as Quality Systems' earnings per share have been growing at an average of 51% year over year for the past two years, which he sees decelerating over the next two years to the 30% level. He also notes that competition may increase in the company's market. To maintain growth, he believes Quality Systems would have to aggressively grow its sales force, which history suggests impacts near term earnings per share.