Can Cerner Corp. (CERN) Surprise This Earnings Season? - Analyst Blog

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Cerner Corporation ( CERN ) is scheduled to report third-quarter 2014 results after the closing bell on Oct 23. In the last reported quarter, Cerner recorded a positive earnings surprise of 2.78% on the back of higher revenues from all businesses and strong bookings performance. Moreover, Cerner's trailing four-quarter average beat is 4.33%.

Let's see how things are shaping up for this announcement.

Factors to Consider

One of the leading players in healthcare information technology, Cerner is poised to largely benefit from the Affordable Care Act which is driving hospitals and healthcare providers to lower costs and improve quality. Cerner will gain from the ongoing adoption of Electronic Medical Record (EMR) systems at hospitals as well as the industry-wide consolidation activity.

As Cerner's clients acquire hospitals, it leads to higher booking contributions for the company. Notably, the company expects new business bookings between $1 billion and $1.1 billion in third-quarter 2014, the mid-point of which reflects 13% growth over the prior-year quarter.

Cerner has also raised its 2014 revenue guidance to the range of $3.3-$3.4 billion from the prior range of $3.25-$3.4 billion. With Cerner's recent $1.3 billion deal to acquire Siemens Health Services, the company's annual revenues are expected to cross $4.5 billion this year. Furthermore, 2014 adjusted earnings are expected to be higher at $1.64-$1.67, compared with the prior range of $1.63 to $1.67, excluding share-based compensation expenses.

While Cerner's outlook remains bright, competition is fierce with well reputed names such as Allscripts Healthcare Solutions, athenahealth, and Quality Systems. The intensity of competition may pressurize both pricing and margins. Stringent hospital budgets might pressurize pricing further.

Earnings Whispers

Our proven model does not conclusively show that Cerner is likely to beat earnings this quarter as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or at least 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%, as both these estimates stand at 39 cents.

Zacks Rank: Cerner's Zacks Rank #3 (Hold) when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat:

Pacific Biosciences of California, Inc. ( PACB ) with an earnings ESP of 36.84% and a Zacks Rank #2 (Buy).

Heartware International Inc. ( HTWR ) with an earnings ESP of 21.21% and a Zacks Rank #3 (Hold).

Hologic Inc. ( HOLX ) with an earnings ESP of 5.41% and a Zacks Rank #3 (Hold).

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CERNER CORP (CERN): Free Stock Analysis Report

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HEARTWARE INTL (HTWR): Free Stock Analysis Report

PACIFIC BIOSCI (PACB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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