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Cerner Remains Neutral

Zacks Equity Research

We maintain our recommendation on Cerner Corporation (CERN) at Neutral. Cerner reported third quarter earnings per share of 56 cents, beating the Zacks Consensus Estimate by a penny and surpassing the year-ago earnings of 45 cents per share. Net income surged 25.4% year over year to $98.9 million.

Revenues in the third quarter rose 18% year over year to $676.5 million, well ahead of the Zacks Consensus Estimate of $654 million.

Revenues increased on the back of growth in Support, Maintenance and Services (up 16.4% to $432.3 million), robust System sales (up 21.8% to $229.9 million) and higher revenues from Reimbursed Travel (up 24.4% to about $14.3 million).

Bookings came in at $769.9 million, up 18% year over year, – a record high for the company in any third quarter. Total revenue backlog stood at $6.79 billion, up 20% year over year, including $6.06 billion of contract backlog and $724 million of support and maintenance backlog.  

Cerner remains the trend setter among pure-play, publicly traded healthcare IT (:HCIT) vendors. We believe Cerner has positioned itself as one of the better placed clinical technology vendors to benefit from high HCIT spending over the next few years. The company is diversified not only on a global basis but serves both hospitals and ambulatory outfits. Its integrated solutions have captured market share.

We believe long-term investors may consider Cerner, which serves a sizeable installed hospital base. It requires composite clinically-focused applications complying with ‘meaningful use’ requirements and tackling complex coding challenges. The company has long-standing, integrated and seamless solutions for both inpatient and ambulatory settings.

On the negative side, the federal Stimulus program will gradually wind down. Cerner faces stiff competition from established HCIT players, such as Athenahealth (ATHN), Allscripts Healthcare Solutions (MDRX) and Quality Systems (QSII) and many others in a crowded field. The company is developing multiple growth drivers which will ensure its future growth.

The stock carries a Zacks #3 Rank, which translates into a short-term Hold rating.

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