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Cerner Beats Ests, Profit Rises - Analyst Blog

By: Zacks.com
Posted: 2/6/2013 8:44:00 AM
Referenced Stocks: ATHN;BDX;CERN;MRGE

Leading healthcare information technology ("HCIT") solutions provider Cerner Corporation ( CERN ) reported fourth-quarter and 2012 earnings per share of 63 cents and $2.26, respectively, beating the corresponding Zacks Consensus Estimates of 60 cents and $2.23 and the year-ago earnings per share of 52 cents and $1.76 per share, respectively.

Net income rose 22.6% year over year to $111.8 million (or 63 cents per share) due to buoyant bookings.

Revenues

Revenues for the fourth quarter rose 15% year over year to $710.4 million, handily beating the Zacks Consensus Estimate of $697 million. The corresponding figure for 2012 was $2,665.4 million, an increase of 21% year over year, surpassing the Zacks Consensus Estimate of $2,652 million.

In the reported quarter, higher revenue from Support, Maintenance and Services (up 15.9% to $445.1 million) was supported by robust System sales (up 14.2% to $251.8 million). Revenues from Reimbursed Travel were up 21% to about $13.5 million.

Bookings and Revenue Backlog

Bookings amounted to $1.02 billion, up 13% year over year and an all time high for the company. Total revenue backlog came to $7.27 billion at the end of the fourth quarter, up 19% year over year, including $6.53 billion of contract backlog and $738.2 million of support and maintenance backlog.

Margins

Gross margin for the quarter dropped slightly to 78.4% from 78.6% a year ago. Operating margin increased marginally to 22.6% from 22.4% in the prior-year quarter.

Balance Sheet & Cash flow

Cerner ended the quarter with cash, cash equivalents and short-term investment of $1,036.8 million, up 33.8% on a year-over-year basis. Total long-term debt and other obligations rose 57.3% year over year to about $136.6 million.

Cash flow from operation was $180.6 million in the reported quarter, up 7.2% year over year. Free cash flow was $99.4 million, down 15.9%.

Outlook

For the first quarter of 2013, the company forecasts sales in a band of $690 million and $715 million and earnings per share, before share based compensation expense, of 61 cents to 63 cents. Fresh bookings for the quarter are projected between $720 million and $760 million. Cerner projects stock-based compensation costs to dilute first-quarter earnings by about 4 cents.

For 2013, the company forecasts sales in the region of $2,950 million and $3,050 million. Earnings per share, before share based compensation expense, are expected to be in the neighborhood of $2.75 and $2.82. Cerner projects stock-based compensation costs to dilute earnings by about 16 cents to 17 cents.

We believe long-term investors may consider Cerner, which serves a sizeable installed hospital base that requires composite clinically-oriented applications complying with "meaningful use" requirements, reimbursement difficulties and complicated 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 is gradually winding down. Moreover, the favorable growth prospects are already factored into the stock price and the risk-reward trade-off appears to be fairly poised. Cerner faces stiff competition from established HCIT players, such as Athenahealth ( ATHN ).

We currently have a Zacks Rank #4 (Sell) on Cerner. However, we are more positive about other stocks such as Merge Healthcare Incorporated ( MRGE ) and Becton, Dickinson and Company ( BDX ) both of which carry a Zacks Rank #2 (Buy) and are expected to do well.  



ATHENAHEALTH IN (ATHN): Free Stock Analysis Report

BECTON DICKINSO (BDX): Free Stock Analysis Report

CERNER CORP (CERN): Free Stock Analysis Report

MERGE HEALTHCAR (MRGE): Free Stock Analysis Report

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