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The Argus analyst rating on Cerner Corp. (CERN) has been raised to BUY, from HOLD. Cerner is involved in several fast-growing segments of information software products, professional services, and medical device integration for healthcare providers. The company has just completed a self-described 'investment year,' designed to position it for growth, and topped expectations in 2Q19 for the first time in four quarters. Under pressure from activist investor Starboard Value, the company has also become more shareholder-friendly, with an increased stock buyback and a newly-initiated dividend.
In addition, Cerner has reorganized its board at the behest of Starboard. We believe the shares offer value: on the fundamentals, CERN trades at 23-times our 2020 EPS estimate, below the five-year average of 27 and the average of 26 for a healthcare services peer group that includes ATHN, MDRX, and MDSO. It is also trading at a price/sales ratio of 4.1, below the peer average of 4.8. We are setting a target price of $80, which assumes a P/E ratio closer to the industry average.