Healtheon’s stock is down more than 50 percent since it topped out in May, immediately following the company’s announcement of its still-pending merger with Atlanta-based WebMD Inc.

Healtheon, based in Santa Clara, Calif., went public last February at an initial price of $8 a share. The company’s software and services enable health-care information, both medical and administrative, to be exchanged over the Internet.

Earlier this month, U.S. Bancorp Piper Jaffray analyst Daren Marhula put a "buy" rating on Healtheon’s stock and set a 12-month price target of $50 a share.

HLTH stock performance chart since its February IPO

Marhula says investors have a buying opportunity now that Healtheon’s stock has returned to earth following the initial euphoria over the pending WebMD merger.

"Healtheon has the right long-term vision," Marhula says. "The health-care industry has a significant amount of players involved. That makes it ideal for what Healtheon does."

However, Marhula concedes that investors might get an even better deal on the stock after the WebMD merger is finalized sometime near the beginning of November. Once that happens, about 50 million additional Healtheon shares will become available for trading, due to the expiration of the SEC-mandated lock-up period related to the merger.

"That’s the biggest drag on the stock right now," Marhula says. "But the important things to keep in mind are that the Internet is evolving into a hub for the health-care industry, and Healtheon has a very good list of strategic partners and customers."

Marhula may be on target when it comes to assessing the impact of the lock-up expiration on the stock. In August, when the first post-IPO lock-up on Healtheon’s stock expired, sellers pushed the stock down $8 in just one day, says Richard Lee, an analyst at Wit Capital. Investors who bought Healtheon shares after August’s post-lock-up dip have seen respectable, though not spectacular, gains since then.

Marhula says he likes Healtheon’s stock at its current price. He agrees the stock may go down if those affected by the current lock-up start selling. But he sees that as a very short-term effect. Over the longer term, Marhula says Healtheon’s stock will go back up in tandem with the company’s progress implementing its business plan.

Judging from the numbers, there’s at least some reason to be optimistic. Healtheon’s revenue for the three months ended June 30, increased 108% to $22.7 million, compared with revenue of $10.9 million for the same period a year earlier. Meanwhile, the company’s operating loss, before depreciation and amortization, declined slightly over the same period to $13.3 million in the second quarter of 1999, compared with 13.9 million in the first quarter.

Healtheon officials aren’t talking to the press right now, due to SEC quiet-period regulations. But according to the company’s Web site, more than 150,000 physicians and 450 organizations that pay for health care are registered to use the service. The company also says it’s currently processing more than one million health care related e-commerce transactions per month.

"Healtheon is very strong in business-to-business," Marhula says.

Several other analysts, however, say it would be a mistake to buy Healtheon shares right now simply because they’re trading below $50.

"The stock shouldn’t have gone up to $100 after the WebMD deal," Lee says. "It had been trading in the $30 range. Since then, it’s come down to its more historical level."

Lee’s the author of Wit’s Wisdom on eHealth, a securities newsletter published by Wit Capital, based in San Francisco. Wit Capital doesn’t currently have a formal rating on Healtheon’s stock. But Lee says investors should be cautious until after the WebMD merger is complete.

"We’ll have a much better sense of how the stock will do after the stock overhang hits the market," Lee says. He adds that Healtheon’s strict interpretation of SEC quiet-period regulations has left most financial analysts in the dark as to the company’s progress and prospects. "We’ll get a better picture when Healtheon starts talking to the Street again" sometime next month, he says.

Health-care industry analyst Peter Boland, of Boland Healthcare, based in Berkeley, Calif., is even less-sanguine about jumping into Healtheon’s stock at its current level. "Healtheon still has to prove its business case," he says.

Boland says Healtheon hasn’t lived up to promises it made to two of its largest big-name customers, physician group Brown & Toland in the San Francisco Bay Area, and Beech Street, a managed care company based in Irvine, Calif. "Healtheon hasn’t delivered on time, which has created significant problems at both client sites," he says.

Boland says Healtheon’s approach to the health-care marketplace thus far has been fraught with some major, systemic problems. The company, he says, has a grand scheme for how the health-care industry should work but hasn’t yet figured out how best to help the industry make that transition.

"Healtheon has an engineering strategy rather than a business strategy," Boland says. "It looks good from 500 miles up in the sky, but when you get on the ground, things get a good deal more complicated."

Boland says several other competitors, most notably Elmwood Park, N.J.-based CareInsite Inc. {CARI} have more direct experience working within the health-care industry. But like Healtheon, Boland says CareInsite also faces its own daunting set of challenges.

"They have to get multiple thousands of doctors to swap out of their old medical management solution to a new one," Boland says. "I don’t think the docs are going to want to pay for that."

Marhula, on the other hand, says Healtheon has rapidly built a strong brand name in a fast-growing industry.

Lee agrees. "There’s no doubt that Healtheon is one of the major players, period," he says. "The company has a great brand, it’s well known, enormous, ubiquitous, and full service. Literally every company I talk to says they’ve run into Healtheon."

Marhula says his faith in Healtheon is strong enough to withstand any temporary dip the stock may take after merger-related lock-up expires in a few weeks. "We’re not planning on changing our [$50] price target anytime soon," he says.

About $11 billion was spent on health-care information systems and services in 1997, a figure Piper Jaffray expects to double to $22 billion by 2002.