Shares of Cerner Corporation (CERN) hit a new 52-week high of $95.28, before closing on Wednesday, Apr 10 at $95.27. Shares of this leading health care IT vendor have drifted upward by 40.1% since Oct 23, 2012.
Drivers that Triggered Momentum
Cerner has reported four consecutive positive earnings surprises in the past four quarters, with an average surprise of 6.3%. Positive earnings surprises have facilitated the shares to gather momentum and achieve a new high.
Cerner reported fourth quarter adjusted earnings per share of 63 cents beating the Zacks Consensus Estimate of 60 cents and the year-ago earnings per share of 52 cents. Revenues in the fourth quarter rose 15% year over year to $710.4 million, handily beating the Zacks Consensus Estimate of $697 million. Bookings amounted to $1.02 billion on Dec 31, 2012, up 13% year over year and an all time high for the company.
We believe Cerner is one of the better placed clinical technology vendors. The company serves both hospitals and ambulatory outfits and has a small international presence. We believe long-term investors may consider Cerner, which serves a sizeable installed hospital base. This requires integrated clinically-focused applications complying with meaningful use requirements and complicated coding problems.
Besides its strength on the inpatient side, Cerner is rapidly capturing market share in the ambulatory side. The company is developing multiple growth drivers such as ITWorks and RevWorks. Of late, the company has engaged in tuck-in acquisitions to bolster its solid organic growth profile.
Key Indicators of the Stock
Cerner currently trades at a forward P/E of 36.4x, reflecting a 29.8% premium to the peer group average of 28.0x. Its price-to-sales ratio of 6.2 is also at a premium to the peer group average of 3.8. Given the company’s compelling fundamentals, the premium valuation may be justified.
The company has a trailing 12-month return on equity (:ROE) of 15.1%, which is better than the peer group average of 11.1%. Cerner enjoys a 11.7% return on assets (:ROA), which is higher than the peer group average of 6.6%.
About the Company
Cerner is one of the larger health care IT companies with a substantial presence in the electronic health record (“EHR”) market. While fresh opportunities are shrinking in the industry, the replacement market is growing. The multitude of growth drivers reduces company-specific risk. The company faces competition from numerous players in a crowded field, including Athenahealth (ATHN).
Cerner carries a Zacks Rank #2 (Buy). We are also positive about Air Methods Corp. (AIRM), which carries a Zacks Rank #1 (Strong Buy). Further, The Cooper Companies Inc. (COO) carries a Zacks Rank #2 (Buy) and is expected to do well.
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