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On Feb 7, we retained Cerner Corporation (CERN - Analyst Report), a leading healthcare information technology (“HCIT”) solutions provider, at Neutral after the company beat Zacks Consensus Estimates for revenues and earnings in fourth quarter 2012. The results came despite consolidation in an industry approaching maturity with a drop in greenfield opportunities but growth in the replacement market.

Why the Retention?

Cerner posted fourth-quarter 2012 adjusted earnings of 63 cents per share, beating the Zacks Consensus Estimate of 60 cents per share and surpassing the year-ago earnings of 52 cents a share. Revenues in the reported quarter increased 15% year over year to $710.4 million, beating the Zacks Consensus Estimate of $697 million.

Following the release of the fourth quarter 2012 results on Feb 5, the Zacks Consensus Estimate for 2013 has moved up by just three pennies to $2.64 while the same for 2014 has remained stagnant at $3.15 during the same timeframe.

For the first quarter of 2013, the company forecasts sales in a band of $690 million and $715 million and earnings per share, before share based compensation expense, of 61 cents to 63 cents. Fresh bookings for the quarter are projected between $720 million and $760 million. Cerner projects stock-based compensation costs to dilute first quarter earnings per share by about 4 cents.

For 2013, the company forecasts sales in the region of $2,950 million and $3,050 million. Earnings per share, before share based compensation expense, are expected to be in the neighborhood of $2.75 and $2.82. Cerner projects stock-based compensation costs to dilute earnings per share by about 16 cents to 17 cents.

On the negative side, the federal Stimulus program is gradually winding down. Moreover, the favorable growth prospects appear to be factored into the stock price and the risk-reward trade-off fairly poised. Cerner faces stiff competition from other established HCIT players, such as Athenahealth (ATHN - Analyst Report). 

Other Stocks to Consider

We currently have a Zacks Rank #3 (Hold) on Cerner. However, we are more positive about other stocks such as Merge Healthcare Incorporated (MRGE - Analyst Report) and Becton, Dickinson and Company (BDX - Analyst Report) both of which carry a Zacks Rank #2 (Buy) and are expected to do well.

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