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Reiterate Cerner at Neutral

Zacks Equity Research

On Apr 29, we retained Cerner Corporation (CERN) at Neutral after the company reported results for the first quarter 2013.

Why the Retention?

On April 25, Cerner Corporation reported first-quarter 2013 adjusted earnings per share of 62 cents beating the Zacks Consensus Estimate of 59 cents and the year-ago earnings per share of 51 cents.

Revenues for the first quarter rose 6.1% year over year to $680 million, missing the Zacks Consensus Estimate of $709 million. The growth in sales was lower than Cerner’s earlier assumptions due to reduced volumes of tech resale, which carries a lower margin.

Bookings amounted to $801.6 million, up 23% year over year and a record for the company in any first quarter. Total revenue backlog was $7.58 billion at the end of the first quarter, up 21% year over year, including $6.8 billion of contract backlog and $747.9 million of support and maintenance backlog.

Following the first quarter results, the Zacks Consensus Estimate for 2013 has moved up by a penny to $2.63 over the past week. The Zacks Consensus Estimate for 2014 has remained stagnant at $3.08 during the same timeframe.

For the second quarter of 2013, the company forecasts sales in a band of $705 million and $735 million and earnings per share, before share-based compensation expense, of 66 cents to 68 cents. Fresh bookings for the quarter are projected between $825 million and $875 million. Cerner projects stock-based compensation costs to dilute second quarter earnings by about 4 cents to 5 cents.

For 2013, the company continues to forecast sales in the region of $2,950 million and $3,050 million. Operating margin is expected to expand 100 basis points (bps) during 2013.

Earnings per share, before stock-based compensation expense, are forecast in the range of $2.78 and $2.83 (earlier $2.75 and $2.82). Cerner projects stock-based compensation costs to dilute earnings by about 17 cents to 18 cents (earlier 16 cents to 17 cents).

Cerner faces competition from Athenahealth, Inc. (ATHN) and Allscripts Healthcare Solutions, Inc. (MDRX) in a crowded field.

Cerner carries a Zacks Rank #3 (Buy). Merge Healthcare Inc. (MRGE) carries a Zacks Rank #2 (Buy) and is expected to do well.

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