Shares of Cerner Corp. CERN hit a new 52-week high of $75.12 on Apr 10, eventually closing a tad bit lower at $75.00. This represents a strong one-year return of about 44%. The S&P 500 also jumped almost 14.1% during the same period.
On an average, Cerner has outperformed the Zacks Consensus Estimate by 1.3% over the last four quarters. This Zacks Rank #3 (Hold) stock has a market cap of $25.69 billion and a long-term expected EPS growth rate of 17.3%.
Key Growth Catalysts
We believe that Cerner is well positioned for growth in 2015 and beyond, owing to a strong product pipeline and new business opportunities. Moreover, multiple industry recognitions earned recently will help the company gain significant market traction. It should also enhance visibility of the company’s wide range of services, which, in turn, will drive top-line growth.
Cerner is greatly benefiting from the accelerated momentum among medical providers to comply with federal EHR requirements. Further, the MEDTECH Act, which aims at reducing the FDA’s regulatory supervision of the Medical IT, is also expected to benefit EHR vendors like Cerner.
The company recently achieved full accreditation with the Direct Trusted Agent Accreditation Program (DTAAP). Black Book Rankings' 2015 health information exchange (HIE) User Survey ranked Cerner as the number one enterprise HIE supplier for inpatient/ambulatory health information technology. In Jan 2015, Cerner won six Best in KLAS 2014 awards including "Best in KLAS" Remote Hosting.
We believe that Cerner’s non-EHR offerings for the untapped Healthcare Information Technology (HCIT) market, such as population health management and care coordination, is an important growth catalyst. The company recently collaborated with North Kansas City Hospital, K2 Consulting Solutions, LifeWise Renovations and Northland Shepherd's Center to create a joint, public-private community program called ‘Aging in Place.’ The program is aimed at providing older adults a safe and comfortable transition from hospitals to their homes.
Since this program will use patient monitoring devices to track data, we feel that it will further advance Cerner’s HealtheLife patient engagement solution. Cerner also announced that its HealtheLife solution will be available on Apple’s AAPL latest watch, which is set to hit the stores on Apr 24.
We believe that these strategic alliances with companies that boast extensive global presence will certainly boost Cerner’s business scale massively. By expanding its range of solutions and services, Cerner will not only improve its international presence but will also be able to boost its revenues.
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 further affect margins.
Estimate Revisions
The Zacks Consensus Estimate for 2015 increased by 6 cents to stand at $1.95 over the past 60 days, which reflects 27.5% growth in 2014. Similarly, the consensus estimate for fiscal 2016 surged 3.1% (7 cents) to $2.33 over the same period.
Stocks to Consider
Better-ranked stocks in the sector are athenahealth ATHN and Merge Healthcare MRGE. Both the companies carry a Zacks Rank #2 (Buy).
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