) hit a new 52-week high of $99.28, before closing on Monday, Jun
3 at $98.86. Shares of this leading health care IT vendor have
moved upward by 27.5% since Jan 1, 2013.
Drivers that Led to Upward Movement
Cerner has reported four consecutive positive earnings
surprises in the past four quarters, with an average surprise of
5.4%. Positive earnings surprises have contributed to the shares
Cerner reported first quarter 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 in the first
quarter rose 6.1% year over year to $680 million, missing the
Zacks Consensus Estimate of $709 million. Bookings amounted to
$801.6 billion up 23% year over year and a record for the company
in any first quarter.
We believe Cerner is one of the better placed health care
information 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. The company's clients require
integrated clinically-focused applications complying with
meaningful use requirements and complicated coding patterns.
Besides its strength on the inpatient side, Cerner is rapidly
capturing market share on the ambulatory side. The company is
developing multiple growth drivers such as ITWorks and
The company has consistently grown its business, mostly
through organic means. We expect Cerner to further expand
operating margin by improving on time required for
implementation. Cerner has grown earnings per share in the past
by expanding operating margin.
Key Indicators of the Stock
Cerner currently trades at a forward P/E of 37.6x, reflecting
a 15% premium to the peer group average of 32.7x. Its
price-to-sales ratio of 6.3 is also at a premium to the peer
group average of 3.4. Given the company's compelling
fundamentals, the premium valuation may be justified.
The company has a trailing 12-month return on equity (ROE) of
15.2%, which is better than the peer group average of 10.6%.
Cerner enjoys an 11.8% return on assets (ROA), which is higher
than the peer group average of 6.5%.
About the Company
Cerner is one of the larger health care information technology
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 company
faces competition from numerous players in a crowded field,
Cerner carries a Zacks Rank #3 (Hold). We are more positive
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