NightHawk Radiology Holdings Inc.NHWK

Morningstar Rating

Stock Research and Analysis

by Lauren Migliore

NightHawk Radiology is the industry leader in the nascent teleradiology business, but recent management blunders have seriously hurt the firm's financial performance. While we think it may take a few years for the company to regain its footing, we believe NightHawk will continue to benefit from favorable industry dynamics. Read more

Bulls Say

With read volumes estimated to increase as much as 15% annually, according to Frost & Sullivan, and the American Journal of Roentgenology projecting new radiologists will increase by only 2% each year, teleradiology is well-positioned to provide an efficient and cost-effective solution.

NightHawk is the leader in the teleradiology field. The company serves roughly 50% of hospitals using a teleradiology provider, covering 26% of all hospitals nationwide.

In addition to its bread-and-butter preliminary reads business, NightHawk is expanding into final interpretations, 3D cardiac imaging, and business-service offerings. The firm's solutions suite provides ample cross-selling and growth opportunities.

With a team dedicated to licensing, credentialing, and customer service, as well as a direct salesforce, NightHawk is able to maximize the efficiency of its radiologists. The firm's scalability allows it to keep smaller competitors at bay. Read more

Bears Say

NightHawk has seen consecutive price declines during the last few years, and management projects pricing will take another significant hit in 2009.

Teleradiology firms may have a harder time finding opportunities for growth in the market for preliminary reads, which brings in the bulk of revenue and has already reached 50% market penetration.

Poor customer service led to decreased revenue growth and lower customer retention over the past year. NightHawk lost millions due to customer attrition in 2008.

The firm operates in a nascent industry, and future profitability is vulnerable to regulatory changes. Read more

Strategy

Leveraging its team of radiologists, NightHawk aims to maximize efficiency and scan volumes more effectively than competitors. After becoming the leader in the preliminary reads market through organic and acquired growth, the company has its eye on penetrating the lucrative $15 billion market for final reads. Read more

Management

We award NightHawk fair marks for stewardship due to the company's recent poor performance, management shakeups, and a number of antitakeover provisions. David Engert took the reins from co-founder and former CEO Paul Berger in late 2008. Berger's departure as chief executive marks the climax of a long line of top officials that have left NightHawk in the past year in the wake of the company's poor performance. Read more

Profile

NightHawk Radiology provides radiologic interpretation services to hospitals and other medical facilities in the United States seeking to outsource their scan reads. The majority of business comes from nighttime and weekend preliminary reads, which currently constitute 79% of revenue. Read more

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