(By Mani) Huron Consulting Group
) is expected to see significant benefits from the recent Healthcare reform, and other changes impacting hospitals should drive secular growth over the next 3-5 years.
Huron Consulting helps clients in diverse industries improve performance, comply with complex regulations, resolve disputes, recover from distress, leverage technology, and stimulate growth.
Huron's strong structural growth is driven by the multiple changes happening to hospitals, and Huron's leading position within the segment.
"We estimate that ~50% of HURN's consulting revs are derived from the hospital end market where Huron works with distressed as well as healthier hospital clients to help drive operational performance improvements," Deutsche Bank analyst Paul Ginocchio said in a client note.
The company is more insulated from the economic cycle due to its 67 percent revenue exposure to Healthcare and Higher Education.
The recent affirmation of Healthcare Reform could spur activity in the near term, and its recent acquisition of AdamsGrayson coupled with its low cost strategy should resonate in this environment.
Healthcare reform in the US should drive demand for Huron's Healthcare consulting practice as hospitals seek outside help to deal with changes in reimbursement rates and the expected higher demand from 32 million new insured Americans.
Through the Centers for Medicare & Medicaid Services (CMS), the US government has been making reimbursement payments to hospitals for meaningful use of electronic healthcare records.
"We believe these payments to hospitals provide additional cash for engaging hospital consultants, particularly on IT projects," Ginocchio noted.
Since January 2011, the incentive payment program has made more than $3.7 billion in payments to hospitals out of a total pool of up to $27 billion.
As a result, these reimbursements allow for a lot of growth for Huron in the hospital consulting industry, given that Huron is the second largest hospital consultant behind Deloitte & Touche. In 2011, the company generated $405 million revenues from its Healthcare & Higher Education segment.
Meanwhile, increases in university endowments are generally positive as it drives demand for grant management, compliance management, and related administration work. Typically, increase in state scrutiny over utilization of funds also creates demand for consulting services.
"In a fund-constrained environment Huron benefits from clients seeking access to limited research funds. State funding cuts, we believe, led to consulting engagement wins for Huron both at Univ. of Calgary and University of Kentucky," the analyst added.
In addition, Huron's bankruptcy practice may also see a pickup in the coming quarters as an uptick in corporate bankruptcies creates debtor and creditor side work for bankruptcy consultants such as Huron. An increase in disputes/ investigation/ litigation activity is positive for Huron's e-Discovery practices.