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

Zacks Equity Research

Cerner Corporation’s CERN third-quarter 2019 results are scheduled to release on Oct 24 after the closing bell. In the last reported quarter, the company delivered a positive earnings surprise of 3.13%. Further, it has an average four-quarter positive surprise of 0.78%.

Let’s take a look at how things are shaping up prior to this announcement.

Which Way Are Q3 Estimates Treading?

The Zacks Consensus Estimate for third-quarter earnings is pegged at 65 cents, suggesting an improvement of 3.2% from the year-ago quarter. The same for revenues is pegged at $1.43 billion, indicating growth of 6.7% from the year-ago reported figure.

Cerner Corporation Price and EPS Surprise

 

Cerner Corporation Price and EPS Surprise

Cerner Corporation price-eps-surprise | Cerner Corporation Quote

Factors to Influence Q3

Management at Cerner expects bookings revenues between $1.50 billion and $1.70 billion in the third quarter. The mid-point of this range reflects an increase of 1% from the prior-year quarter. Several large, long-term deals in the pipeline are likely to have backed the guidance. Additionally, the Zacks Consensus Estimate for third quarter bookings is pegged at $1.62 billion, indicating an improvement of 2.3% from the year-ago quarter.

The company’s third-quarter top line is expected reflect an improvement in revenues across professional and managed services segments, and licensed software business line. Notably, the company expects revenues to range between $1.41 billion and $1.46 billion in the third quarter. The mid-point of this range reflects growth of 7% from the year-ago quarter.

Given the structural and process changes that are being made by the company, Cerner is likely to have become more focused and efficient, which in turn might have improved predictability and profitability. In fact, adjusted earnings per share are expected in the band of 65-67 cents in the third quarter. The mid-point of this range is 5% higher than the year-ago quarter.

Further, strong contributions from the key areas, namely Population Health, Revenue Cycle and IT Works are anticipated to get reflected in the company’s overall performance. Moreover, better-than-expected non-U.S. revenues are likely to have impacted the to-be-reported quarter’s performance.

However, the company is likely to have experienced contraction in operating margin in the third quarter primarily thanks to headwinds like non-cash software amortization and depreciation, traditional software revenue growth challenges. Further, the company might have experienced a decline in gross margin in the to-be-reported quarter owing to somewhat higher mix of third-party services.

Here’s What the Quantitative Model Suggests

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise. This is not the case here as you will see below.

Earnings ESP: Cerner has an Earnings ESP of +0.82%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cerner carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Edward Lifesciences Corporation EW has an Earnings ESP of +0.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

AmerisourceBergen Corporation ABC has an Earnings ESP of +0.55% and a Zacks Rank #3.

Cardinal Health, Inc. CAH has an Earnings ESP of +1.50% and a Zacks Rank #3.

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