Leading healthcare information technology (HCIT) solutions provider, Cerner Corporation (CERN - Analyst Report), recently approved a $170 million share repurchase program, in an effort to leverage shareholder return.
Future equity grants are likely to have a dilutive effect on earnings. Thus the company initiated this repurchase program to withstand the adverse effect of these grants. Cerner plans to fund the program with its working capital. At the end of the third quarter of 2012, Cerner had roughly $1.2 billion of working capital at its resources.
Considering the closing price of $79.16 on Dec 12, 2012, the company could have repurchased roughly 2.1 million shares (1.2% of the company’s outstanding shares). Given its strong balance sheet, we believe that Cerner is comfortably positioned to support the share buyback.
The repurchase will be executed from time to time in the open market by block purchase or broker-dealer transactions. No particular time limit was provided regarding the completion of the program.
Till Dec 31, 2011, Cerner had repurchased roughly $28 million shares under its previous stock repurchase program of $45 million, which was initiated in March 2008. However, the company decided to discontinue the program in 2012.
Cerner remains the trend setter among pure-play, publicly traded healthcare IT (HCIT) vendors. We believe that Cerner has positioned itself as one of the better placed clinical technology vendors to benefit from high HCIT spending over the next few years. The company is diversified not only on a global basis but serves both hospitals and ambulatory outfits. Its integrated solutions have captured market share. While greenfield opportunities are shrinking, the replacement market is growing.
We believe that Cerner’s sizeable installed hospital base will attract long-term investors. Its clients require composite clinically-focused applications complying with the ‘meaningful use’ requirements and tackling coding challenges as well. The company has long-standing, integrated and seamless solutions for both in-patient and ambulatory settings.
On the negative side, the federal Stimulus program will gradually wind down. Cerner faces stiff competition from established HCIT players, such as Athenahealth Inc. (ATHN - Analyst Report), Allscripts Healthcare Solutions Inc. (MDRX - Analyst Report) and Quality Systems Inc. (QSII - Analyst Report) and many others in a crowded field. The company is developing multiple growth drivers which will ensure its future growth.
We have a long-term Neutral recommendation on Cerner. The stock currently retains a short-term Zacks #3 Rank (Hold rating).