Cerner Corp CERN is slated to report second-quarter 2015 earnings on Aug 4. In the last quarter, the company reported earnings of 42 cents which were in line with the Zacks Consensus Estimate. We note that Cerner has outperformed the Zacks Consensus Estimate in three of the preceding four quarters, with an average surprise of 1.3%.
Let’s see how things are shaping up for this announcement.
Factors at Play
We believe Cerner is favorably positioned for growth in 2015, banking on a strong pipeline and new business opportunities. For the second quarter of 2015, Cerner forecasts revenues between $1.18 billion and $1.23 billion. The mid-point of the guided range reflects 41% year-over-year growth.
Cerner continues to win contracts that are expected to drive its top line going forward. A string of new deals and the renewal of existing ones will aid the company to gain better market traction. Apart from contract wins, Cerner is expected to gain from new partnerships.
However, the HCIT market is highly competitive, which puts considerable pressure on both pricing and margins. Moreover, a growing proportion of low-margin services and technology resale may affect margins. Meanwhile, stringent hospital budgets exert pressure on pricing.
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 (Strong Buy), #2 (Buy) or at least #3 (Hold) for this to happen. That is not the case here, as you will see below.
Zacks ESP: Cerner has a 0.00% ESP. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 48 cents.
Zacks Rank: Cerner’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.
Stocks to Consider
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:
Agios Pharmaceuticals AGIO with an Earnings ESP of +75% and a Zacks Rank #1.
TransEnterix TRXC with an Earnings ESP of +7.14% and a Zacks Rank #2.
HCA Holdings HCA with an Earnings ESP of +2.24% and a Zacks Rank #2.
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