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Cerner (CERN) Q4 Earnings Meet, Revenues Miss Estimates

Cerner CorpCERN reported adjusted fourth-quarter 2016 earnings of 57 cents per share, in line with the Zacks Consensus Estimate. Notably, earnings inched down 1.7% on a year-over-year basis.

The company reported net revenues of $1.257 billion, missing the Zacks Consensus Estimate of $1.262 billion. Meanwhile, revenues rose almost 7% on a year-over-year basis and were pegged at the midpoint of Cerner's previously provided guidance of $1.225 billion to $1.300 billion.

Cerner Corporation - Earnings Surprise | FindTheBest

For full-year 2016, the company registered revenues worth $4.80 billion, up 8% on a year-over-year basis. Of the major revenue segments, System sales accounted for 26.3% of net revenues in 2016. Furthermore, Support, maintenance and service revenues had a share of 71.8% and Reimbursed travel segment accounted for 1.8% of net revenues in 2016.

Meanwhile, the stock carries a Zacks Rank #4 (Sell).

Stock Performance

Over the last three months, the stock added 3%, slightly lower than the Zacks classified Medical Info Systems sub-industry's gain of 6.5%. Additionally, the current level is below the S&P 500's return of 5.1% over the same time frame.

However, a modest long-term expected earnings growth rate of 14.72% instills our confidence in the stock.

Quarter Highlights

Bookings in the fourth quarter of 2016 were $1.44 billion, up 7% on a year-over-year basis. In comparison with the company's previously provided guidance, bookings were at the lower end of the range due to the lack of new ITWorks deals.

Revenue Cycle was a strong contributor to the company's results, courtesy of strong sales and solid contribution from RevWorks services (revenue management services). For the full year, the segment witnessed 19% revenue growth and record bookings.

Population Health service businesses also drove revenues in the fourth quarter on the back of solid growth in the company's flagship HealtheIntent solutions. For the full year, the segment witnessed 13% growth in revenues compared to 2015.

Meanwhile, Cerner and the University of Missouri Health Care announced an agreement to extend their partnership in the fourth quarter. The duo extended their existing HealtheIntent population health management platform across the Health Network of Missouri (read more: Cerner Extends HNM Partnership with University of Missouri ).

Cerner Corporation Price and EPS Surprise

Cerner Corporation Price and EPS Surprise | Cerner Corporation Quote

The company also posted an impressive performance in the ambulatory and small hospital market. For the full year, ambulatory bookings grew 16% on a year-over-year basis.

Segments in Detail

System sales decreased 7.8% year over year to $352.2 million, owing to a decline in technology resale and software.

Total services revenues, including professional and managed services, rose 13.5% from the year-ago quarter. This is in line with management's guidance and reflects solid execution by the company's service organizations.

Due to lower equipment maintenance revenues as a result of technology resale, Support and maintenance revenues increased 3%.

Geographically, domestic revenues increased 7% from the year-ago quarter to $1.11 billion and non-U.S. revenues grew 8% to $145 million.

Margin Details

Gross margin in the reported quarter contracted 10 basis points, totaling 82.9%, courtesy of the lower mix of technology resale and improving service margins.

Cerner registered adjusted operating margin of 23.3% in the reported quarter, which is down from 24.7% year over year.

As a percentage of revenues, sales and client services expanded 110 basis points (bps) to 42.7%. Meanwhile, both software development and general and administrative expenses contracted roughly 40 and 20 bps, respectively.

Balance Sheet

Cerner had a total backlog of $15.927 billion, up 12% on a year-over-year basis.

Cerner ended the fourth quarter of 2016 with $466 million of total cash and investments.

Total debt for Cerner, including capital lease obligations, was $564 million.

Operating cash flow for the quarter was $333.2 million.

Guidance

For first-quarter 2017, Cerner forecasts revenues between $1.200 billion and $1.275 billion. The company expects booking revenues in the band of $1.125 billion and $1.275 billion. Adjusted earnings are now expected in the band of 57 cents to 59 cents per share.

For full-year 2017, management expects revenues between $5.100 billion and $5.300 billion. Cerner currently forecasts 2017 adjusted earnings in the band of $2.44 and $2.56 per share.

Stocks to Consider

Better-ranked stocks in the broader medical sector include Addus Glaukos Corporation GKOS , Avinger, Inc. AVGR and Fluidigm Corporation FLDM . Notably, Glaukos and Avinger sport a Zacks Rank #1 (Strong Buy) while Fluidigm carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Glaukos Corporation has a long-term expected earnings growth rate of approximately 25%. Notably, the stock represents an impressive one-year return of 191.03%.

Avinger projects sales growth of 2.3% for the current year. Additionally, the company posted a positive earnings surprise of 27% in the last quarter.

Fluidigm Corporation has a long-term expected earnings growth rate of approximately 25%. Notably, the stock represents a positive one-year return of 0.33%.

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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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