As if Amazon (AMZN– Research Report) hadn’t branched out enough already, it has now set its sights on the extremely lucrative healthcare market. The company revealed its potentially groundbreaking medical language processing tool at the AWS re:Invent conference in Las Vegas last week.
Amazon Strides Ahead
Welcome to “Amazon Comprehend Medical.” This is a new machine learning service that allows developers to process unstructured medical text and identify information. That can be everything from patient diagnosis, treatments, to dosages, symptoms and signs.
According to Amazon, the majority of health and patient data is stored today as unstructured medical text. Think medical notes, prescriptions, audio interview transcripts, and pathology and radiology reports.
Right now identifying this information is a manual and time-consuming process. Either it requires data entry by high skilled medical experts, or teams of developers writing custom code and rules to try and extract information automatically.
Both of these options take material resources away from other efforts to improve patient outcomes through technology. Now Amazon says it has cracked this conundrum.
Amazon Comprehend Medical allows developers to identify the key common types of medical information automatically, accurately, and without large numbers of custom rules. It can identify medical conditions, anatomic terms, medications, details of medical tests, treatments and procedures.
The best part: there are no servers to provision or manage – developers only need to provide unstructured medical text to Comprehend Medical.
And just in case you were worried, the software is also HIPAA (Health Insurance Portability and Accountability Act) eligible.
So what does all this mean?
Five-star RBC Capital analyst Mark Mahaney (Track Record & Ratings) is here to help us answer this question. Not only is he a Top 50 analyst, but on Amazon stock specifically he scores an impressive 85% success rate and 39% average return per rating.
According to RBC Capital, the total healthcare digitization market is worth around $300B. This is just a slice of the massive $3.2 trillion healthcare market.
Luckily for Amazon the consumer health IT market is almost nonexistent right now. It is largely a derivative of the managed care market, with beneficiary technologies often sold to payers.
Aside from Cerner and Epic, major competitors highlighted by the firm include UnitedHealth’s Optum unit, Medidata, Veeva and IQVIA in clinical research.
That said, can Amazon be a successful leader in this market?
“Success may be hard to define, given that this market underwent ~6-7 year investment cycle propelled by large government stimulus. As such, we are seeing the end market flatten and providers are looking to spend capital in other places” the RBC report states.
Plus the provider-facing IT space often has been a cautionary tale for multi industry technology vendors. For example, none of Microsoft, Google, or Oracle have seen the market success of healthcare-only focused vendors.
“The introduction of this new software demonstrates Amazon’s focus and investment in machine learning technology across verticals” writes Mahaney.
Clearly, Amazon has a growing interest in the $3.2T healthcare market, given its ~$1B PillPack Inc. acquisition, its attempts to penetrate the medical supplies market, and this recent announcement of Amazon Comprehend Medical.
However what remains unclear still is how much of a disruptor will Amazon be in each of these three healthcare categories.
“We wonder if the big tech companies are better positioned to disrupt the healthcare industry vs. the traditional healthcare companies” writes Mahaney. He believes that Amazon’s customer obsession will likely create material impact on consumers/patients within healthcare.
Net-net, Mahaney believes that, while Amazon could be a major disruptor in healthcare, it will likely be more successful with one part of healthcare over another. This explains its current strategy of covering different parts of this category.
As we can see from TipRanks, AMZN is a top Street pick right now. If we look at only ratings from the best-performing analysts we get the following screenshot:
This shows that in the last three months a whopping 33 top analysts have published AMZN buy ratings. Only one analyst is staying on the sidelines. Meanwhile their average price target of $2,160 speaks of 28% upside for shares from current levels.
However, Mahaney is even more bullish than the average analyst. His buy rating comes with a $2,300 price target. From current levels this indicates shares could surge 36% in the coming months.
“Even though AMZN has consistently traded at a premium valuation level, its sector-leading forward EPS growth outlook and its high EPS quality (very high FCF conversion) warrant, in our opinion, a considerable market multiple premium” he explains.
This is on top of: one of the best management teams on the internet; material margin expansion; new revenue growth opportunities (as well as healthcare we have consumer staples, apparel, international expansion etc); clear market share gains and a path for more of the same; still significant growth for online retail. In other words- AMZN remains a top stock to keep your eye on.
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