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Why Cerner Stock Is Sinking Today

What happened

Shares of Cerner Corporation (NASDAQ: CERN) sank 12.4% as of 11:32 a.m. EDT on Friday due to a double whammy. Cerner reported ho-hum third-quarter results after the market closed on Thursday with only 3.3% year-over-year adjusted earnings per share (EPS) growth. It didn't help that the stock market sold off in a major way Friday morning, with the Nasdaq Composite Index taking the worst beating.

So what

Were Cerner's Q3 numbers bad enough to warrant such a big drop for the stock? Not really.

Man with hands on the back of his head watching screen with stock charts going down
Man with hands on the back of his head watching screen with stock charts going down

Image source: Getty Images.

The healthcare technology provider actually posted revenue and earnings that were within its previously issued guidance ranges. However, they were at the low end of those ranges. The biggest concern with Cerner's top line was that revenue from licensed software and subscriptions fell from the prior-year period.

And while Cerner's adjusted EPS increased slightly year over year, the company posted lower GAAP earnings than it did in the third quarter of 2017. Cerner's spending increased significantly more than its revenue did. The situation could have been even worse were it not for lower income tax expenses in the recent quarter.

Still, none of this news justified Cerner losing more than $2 billion in market cap. The broader market sell-off appears to be creating a general malaise that's especially impacting tech stocks.

Now what

Nothing about the latest decline affects Cerner's business prospects. The company expects relatively solid fourth-quarter revenue that should enable it to beat the midpoint of its full-year 2018 guidance. Cerner continues to enjoy a strong backlog and posted a big jump in bookings of new business in the third quarter that bodes well for its future growth.

One thing to especially watch with Cerner over the next few months is its hiring of a new president. Zane Burke is leaving the company after serving as Cerner's president since 2013.

More From The Motley Fool

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Cerner. The Motley Fool has a disclosure policy.

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