Cerner (CERN) Down 3.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Cerner (CERN). Shares have lost about 3.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cerner due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Cerner Q1 Earnings Beat Estimates, Revenues Miss

Cerner Corporation reported first-quarter 2020 adjusted earnings of 71 cents per share, which beat the Zacks Consensus Estimate of 67 cents by 5.9%. The bottom line also improved 16.4%from the prior-year quarter.

The company reported revenues of $1.41 billion, which missed the Zacks Consensus Estimate by 1.2%. However, the top line increased 1.6% from the year-ago quarter.

Revenues by Geography

Per management, U.S. revenues grossed $1.25 billion, up 1% from the prior-year quarter.

Non-U.S. revenues increased 4% to $165 million from the year-ago quarter.

Bookings

In the reported quarter, the company’s bookings totaled $1.09 billion, down 12.1% from the year-ago quarter. The coronavirus outbreak in mid-March resulted in volume of contracts to be lower than normal in the last two weeks of the first quarter.

Segmental Performance

Licensed software revenues improved 2.4% to $158 million, driven by strong growth in SaaS offerings.

Technology resale revenues were $51.5 million, down 7.3% on a year-over-year basis due to lower level of bookings.

Revenues from Subscriptions grossed $94.4 million, up 11.9% year over year.

Professional services’ revenues totaled $511.3 million, up 4.3% from the prior-year quarter number, on the back of solid growth in implementation services.

Revenues at the Managed services unit amounted to $309.4 million, up 1.6% from the prior-year quarter.

Support and maintenance revenues were $273.7 million, down 1.2% year over year.

Reimbursed travel revenues amounted to $13.5 million, reflecting year-over-year decline of 43.5% on account of the travel restrictions that were in place in March.

Margins

In the quarter under review, gross profit summed $1.16 billion, up 1.8% year over year. Gross margin was 81.9%, up 10 basis points (bps) on a year-over-year basis.

General and administrative expenses increased 45.4% to $139.9 million. Further, software development expenses rose 2.7% to $185.3 million.

Adjusted operating income totaled $273.6 million, up 12.7% from the prior-year quarter. Adjusted operating margin expanded 190 bps to 19.4% during the reported quarter.

2020 Guidance

For second-quarter 2020, Cerner expects revenues between $1.34 billion and $1.39 billion. The Zacks Consensus Estimate for revenues stands at $1.43 billion.

For the second-quarter 2020 adjusted earnings per share is projected between 60 cents and 64 cents. The consensus mark for earnings stands at 70 cents.

New business bookings for second-quarter 2020 are estimated between $1billion and $1.20 billion.

For full-year 2020, the company anticipates revenues in the range of $5.50-$5.70 billion (down from the previously guided range of $5.72-$5.98 billion).

For the full year, adjusted earnings per share are expected between $2.78 and $2.90 (down from the prior guided band of $3.09-$3.19).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.62% due to these changes.

VGM Scores

At this time, Cerner has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cerner has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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