Shares of Cerner Corp. (CERN) reached a 52-week high of $64.62 on Nov 13, 2014. The bullish run reflects a growing hospital base, solid bookings and backlog, and steady margins in the recently concluded third quarter of 2014.
The closing price of Cerner on Nov 14 was $64.53, representing a strong year-to-date return of about 15.8%. The S&P 500 jumped 10.3% during the same period. Average volume of shares traded over the last three months stands at approximately 1614.87K.
Cerner’s third quarter earnings of 39 cents per share were in line with the Zacks Consensus Estimate. On an average, the company has outperformed the Zacks Consensus Estimate by 2.2% over the next four quarters. This Zacks Rank #3 (Hold) stock has a market cap of $21.79 billion and a long-term expected earnings growth rate of 16.84%.
Key Growth Catalysts
Although Cerner’s revenues of $840.1 million missed the Zacks Consensus Estimate in the third quarter, we believe growing backlog and bookings is the key growth catalyst for the company.
Bookings revenues grew 19% to an all-time high of $1.1 billion. Cerner’s bookings performance led to a 21% increase in total backlog to $10.2 billion. Total backlog comprised $9.34 billion in contract revenue backlog and $814.0 million in support and maintenance backlog.
This leading healthcare information technology (“HCIT”) solutions provider also expects fourth-quarter 2014 new business bookings between $1.15 and $1.25 billion.
However, competition is fierce from reputed names such as Allscripts Healthcare (MDRX) and Quality Systems (QSII). The intensity of competition may pressure both pricing and margin. Stringent hospital budgets put further pressure on pricing.
Estimate Revisions
The Zacks Consensus Estimate for 2014 earnings decreased 3 cents to $1.51 per share over the past 7 days. However, this reflects 14.6% year-over-year growth. On the other hand, the consensus estimate for fiscal 2015 has jumped 6 cents to $1.87 over the same period, which reflects 23.6% year-over-year growth.
A Stock to Consider
A better-ranked stock in the Medical Information sector is Merge Healthcare (MRGE), sporting a Zacks Rank #2 (Buy).
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