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Cerner (CERN) to Report Q3 Earnings: What's in the Offing?

Zacks Equity Research
·5 min read

Cerner Corporation’s CERN third-quarter 2020 results are scheduled to release on Oct 28, after the closing bell. In the last reported quarter, the company delivered earnings surprise of 3.3%. Further, it beat estimates in each of the trailing four quarters, the average surprise being 3%.

Q3 Estimates

The Zacks Consensus Estimate for third-quarter earnings is pegged at 71 cents, suggesting an improvement of 7.6% from the year-ago quarter. The same for revenues stands at $1.37 billion, indicating a decline of 4% from the year-ago reported figure.

Factors to Note

Improvement in revenues across Subscriptions and Managed services segments is likely to get reflected in Cerner’s third-quarter results. Notably, the company expects revenues between $1.35 billion and $1.40 billion in the to-be-reported quarter.

The company’s revenues bore the brunt of the COVID-19 induced disruption in the first half of the year. With the resurgence in cases in several regions of the United States, uncertainty still looms large. Consequently, the company’s revenues are likely to reflect the impact of the same in the third quarter.

Per the second-quarter 2020 earnings call, the third-quarter revenue range represents a slightly larger impact of the pandemic than Cerner’s original expectations. It also accounts for the pending sale of the remainder of its RevWorks services business (anticipated to close in the third quarter), which is projected to lower revenues by around $10 million in the third quarter.

Nonetheless, adjusted earnings per share (EPS) is expected to be 70-74 cents in the third quarter. The mid-point of this range is 9% higher than the year-ago quarter. Per management, the company’s capability to offset the impact of lower revenues from the pandemic and lost earnings from divested businesses owing to its cost optimization initiatives to date have been contributing to EPS growth.

In fourth-quarter 2019, the company completed the acquisition of AbleVets for about $75 million (in cash consideration). Cerner has been integrating AbleVets’ service offerings into its portfolio to accelerate growth in the federal space. Per management, the buyout is anticipated to contribute about $90 million to revenues in 2020. Consequently, we expect this contribution to get reflected in the third-quarter results.

Cerner Corporation Price and EPS Surprise

Cerner Corporation Price and EPS Surprise
Cerner Corporation Price and EPS Surprise

Cerner Corporation price-eps-surprise | Cerner Corporation Quote

In first-quarter 2020, Cerner entered into collaboration with CoverMyMeds. Per the deal, the company will integrate patient-specific information into the electronic health record (EHR). Apart from providing detailed price information to consumers, this development enables healthcare providers to review prescription pricing information at the point of care. This, in turn, might have contributed to the to-be-reported quarter’s performance.

In September 2020, Cerner inked a deal with Finland regional leadership with an aim to deliver more coordinated and efficient access to health and social services via a government-sponsored set of standards. Notably, this collaboration will not only strengthen Cerner’s foothold in the healthcare information technology (HCIT) space but also expand its presence geographically.

Further, in the same month, the company announced a collaboration with Vynca — a national leader in advance care planning solutions — to streamline the complicated advance care planning procedure for individuals and families, caregivers and clinicians in a bid to ensure patients’ end-of-life preferences and needs are met every single time. The partnership will allow Cerner and Vynca to break down the digital barrier between legal documents and electronic health records (EHRs), thereby making it simpler for clinicians to carry out the process.

Also, in August, Cerner collaborated with Amazon to allow consumers to easily connect vital health and well-being information with their broader health care teams.

These deals are likely to have contributed to the company’s third-quarter performance.

Moreover, the company is likely to have witnessed operating margin expansion in the third quarter driven by the cumulative impact of the optimization work that it has already done and plans to do in 2020.

Here’s What the Quantitative Model Suggests

Per our proven model, a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here as you will see below.

Earnings ESP: Cerner has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

Here are some other medical stocks worth considering as these too have the right combination of elements to post an earnings beat this quarter.

Stryker Corporation SYK has an Earnings ESP of +0.26% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Masimo Corporation MASI has an Earnings ESP of +10.71% and a Zacks Rank of 3.

Pacific Biosciences of California, Inc. PACB has an Earnings ESP of +15.39% and a Zacks Rank of 3.

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Stryker Corporation (SYK) : Free Stock Analysis Report
 
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