After a disappointing quarter, Merge Healthcare Incorporated (MRGE) has witnessed events that favor the company. This series of good news has been encouraging for investors. Recently, this imaging and interoperability solutions provider revealed encouraging data showing that its OrthoPACS have been used or is being used by more than 650 orthopedic surgeons in over 50 practices. Additionally, in 2013, several practices using other solutions of Merge intend to shift to OrthoPACS, a digital templating solution useful for detailed image management, launched last year.

Viewing the upward demand for imaging and interoperability solutions in the growing orthopedic market, Merge is quite confident about the success of OrthoPACS in this niche. The company encouragingly noted that many practices are ready to upgrade and adopt this new technology.

Technology released by Merge is also trusted by companies like OrthoVirginia, which decided to adopt OrthoPACS. These companies believe in Merge’s commitment toward the market. Prior to Merge OrthoPACS, OrthoVirginia used Styker’s (SYK) Office PACS 4.1. OrthoVirginia is also impressed with the intrinsic technology and user-friendly upgrades.

Advantages for Merge OrthoPACS include the ability to diagnose irrespective of place and time, planning operation with digital template, and archiving studies safely. Additionally, it allows access to images taken at more than one location in a single viewer to orthopedic surgeons.

On the negative side, currently, Merge is facing major difficulties in the form of increasing costs leading to pressure on margin, decrease in medicare reimbursement owing to the budgetary cuts starting Apr 1, as well as dependency on capital investments by hospitals. Amid these headwinds, we are encouraged by Merge’s all-out effort for product expansion and business development. We believe that OrthoPACS, as a part of Merge’s expanding portfolio, will help the company to revert back to its original revenue trajectory in the coming quarters.

Innovation has been an aggressive strategy for Merge Healthcare to drive growth. The company’s efforts to expand its portfolio to meet the growing needs of a multi-billion dollar market are encouraging. Merge is also well placed to benefit from the strong demand for EMR (Electronic Medical Records)-related software in the near future on the back of the Stimulus bill. As more healthcare providers adopt EMR, the demand for Merge Healthcare’s solutions is expected to increase.

With a consentient upward revision in earnings estimate, the stock carries a Zacks Rank #3 (Hold). While we remain on the sidelines for Merge, other medical devices stocks such as Edwards Lifesciences (EW) and Becton, Dickinson and Company (BDX), carrying a Zacks Rank #2 (Buy), appear impressive.