Cerner Corporation

 

Cerner provides information technology (IT) solutions and systems to health care providers around the world to improve decisions and the delivery of health care.  Coupled with its financial systems which help organizations manage revenue and costs, Cerner contributes to improved effectiveness and efficiency of the health care system.  Cerner and the words “cheap” have probably never been uttered in the same sentence because of its growth profile although its premium valuation has contracted to about 23X forward earnings (on FY17 EPS estimates) as its growth in the near term has slowed.  In the past, its forward P/E has been in the 30-40X range.  Two key measures to watch for Cerner are its Bookings and Book-to-Bill (Bookings divided by Revenue).  This gives insight into growth of its backlog (Book-to-Bill above 1 implies backlog growth while below 1 implies a decline in backlog) although it’s important to look at a trend rather than a particular quarter.  Certainly there has been uncertainty on healthcare spending but Cerner’s contribution to improving the delivery of care and reducing the cost should result in continued long-term growth.  One of the reasons recently that Cerner’s revenue growth has slowed is because of an increasing mix in long-term contracts, its backlog of $15.9b is 3.3X FY 16 revenues although some of this backlog will extend beyond 3 years, it just highlights the longer-term nature of its business which ultimately isn’t a bad thing but a short-term focused stock market can result in volatility in its stock price. 

 

Ests                 3Q17   4Q17   FY17    FY18

Revs                1.29     1.36     5.21     5.64

EPS                  .62       .68       2.50     2.78

 

P=71.32, Solid balance sheet, cash+inv> debt, slight WC surplus, TTM EPS 2.41, 30X TTM EPS.

 

3Q17   .61 vs .59, est .62

  • Revs +8% to 1.276bn, OM 23.1% vs 24.4%, OpInc +1.9%
  • Bookings -22.5% to 1.11bn due to several large contracts being delayed, expected in 4Q, B/B=0.87, Backlog +7% to 16.53bn
  • Guidance: 4Q Revs 1.3-1.35bn (est 1.36bn), EPS .60-.62 (est .68), Bookings 1.75-2.0bn (+30%)
  • Preliminary FY18: Revs 5.5-5.7bn (est 5.64), EPS 2.52-2.68 (est 2.78), midpoint +7%
  • Stock down ~8% after market, at 30X TTM earnings, diminished growth outlook for this year and next, stock is expensive. 

2Q17  .61 vs .58, est .61 up from .57,

  • Revs +6% to 1.292bn, OpInc +3%
  • Bookings +16% to 1.636bn, an all-time high, B/B=1.27, Backlog +11% to 16.65bn,
  • Guidance: 3Q Revs 1.265-1.325bn, bookings 1.45-1.6bn, EPS .61-.63 (est .64), FY Revs 5.15-5.25bn, EPS 2.46-2.54

1Q17  .59 vs .53

  • Revs +11% to 1.26bn, OpInc +10.1%
  • Bookings +7% to 1.25bn, B/B=0.99, Backlog +10% y/y to 16.1bn, significant number of new client wins
  • Guidance: Revs 1.265-1.335bn, Bookings 1.3-1.5bn, EPS .60-.62 (est .62), FY17 unchanged (est 2.50)
  • Solid results, stock up 4% in the after-market, long-term growth prospects continue to support the reasonable valuation  

4Q16   .61 vs .61, est .61

  • ·      Revs +7% to 1.26bn,
  • ·      Bookings +7% to 1.44bn, FY bookings 5.45bn vs 5.43bn vs FY revs +8% to 4.8bn
  • ·      Backlog 15.927bn, +12%
  • ·      Strength in new client wins
  • ·      Guidance: 1Q Revs 1.2-1.275bn, EPS .57-.59, FY Revs 5.1-5.3bn (+6.3%-10.4%) EPS 2.44-2.56, (vs 2.30) feel guidance is conservative due to high % of revs coming from backlog