It has been about a month since the last earnings report for Cerner . Shares have added about 2.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cerner due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cerner Q2 Earnings Surpass Estimates, Revenues Miss
Cerner Corporation reported second-quarter 2020 adjusted earnings of 63 cents per share, which beat the Zacks Consensus Estimate of 61 cents by 3.3%. However, the bottom line declined 4.5% from the prior-year quarter.
The company reported revenues of $1.33 billion, which missed the Zacks Consensus Estimate by 2%. Moreover, the top line declined 7% from the year-ago quarter.
Revenues by Geography
Per management, U.S. revenues grossed $1.17 billion, down 8% from the prior-year quarter.
Non-U.S. revenues fell 2% to $162 million from the year-ago quarter.
Bookings
In the reported quarter, the company’s bookings totaled $1.34 billion, down 6.3% from the year-ago quarter. However, the metric came in more than $100 million above the higher end of the company’s guided range courtesy of robust levels of bookings in Managed services in the quarter under review.
Segmental Performance
Licensed software revenues fell 22.8% to $152.2 million, as a decline in traditional license software offset strong growth in SaaS offerings.
Technology resale revenues were $42.1 million, down 30.7% on a year-over-year basis.
Revenues from Subscriptions were $92.1 million, up 2.5% year over year.
Professional services’ revenues totaled $461.1 million, down 4.9% from the prior-year quarter number. The downside can be attributed to impact of the pandemic on project activity, lower third-party services, and the termination of the large RevWorks agreement.
Revenues at the Managed services unit amounted to $307.2 million, up 3.2% from the prior-year quarter.
Support and maintenance revenues were $274 million, down 0.9% year over year.
Reimbursed travel revenues amounted to $1.7 million, reflecting year-over-year decline of 92.8%. This was owing to travel restrictions that were in place in toward the end of first-quarter 2020.
Margins
In the quarter under review, gross profit was $1.12 billion, down 3.8% year over year. Gross margin was 84.1%, up 290 basis points (bps) on a year-over-year basis.
General and administrative expenses decreased 10.3% to $134.3 million. Further, software development expenses fell 1.2% to $185.3 million.
Adjusted operating income totaled $245.3 million, down 4.8% from the prior-year quarter. Adjusted operating margin expanded 40 bps to 18.4% during the reported quarter.
Q3 Guidance
For third-quarter 2020, Cerner expects revenues between $1.35 billion and $1.40 billion. The Zacks Consensus Estimate for revenues stands at $1.39 billion.
For third-quarter 2020 adjusted earnings per share is projected between 70 cents and 74 cents. The consensus mark for earnings is pegged at 71 cents.
New business bookings for third-quarter 2020 are estimated between $1.35 billion and $1.55 billion.
For full-year 2020, the company anticipates revenues in the range of $5.45-$5.55 billion (down from the previously guided range of $5.55-$5.70 billion).
For the full year, adjusted earnings per share are expected between $2.80 and $2.88 (narrowed from the prior guided band of $2.78-$2.90).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Cerner has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Cerner has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Why Is Cerner (CERN) Up 2.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Cerner . Shares have added about 2.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cerner due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cerner Q2 Earnings Surpass Estimates, Revenues Miss
Cerner Corporation reported second-quarter 2020 adjusted earnings of 63 cents per share, which beat the Zacks Consensus Estimate of 61 cents by 3.3%. However, the bottom line declined 4.5% from the prior-year quarter.
The company reported revenues of $1.33 billion, which missed the Zacks Consensus Estimate by 2%. Moreover, the top line declined 7% from the year-ago quarter.
Revenues by Geography
Per management, U.S. revenues grossed $1.17 billion, down 8% from the prior-year quarter.
Non-U.S. revenues fell 2% to $162 million from the year-ago quarter.
Bookings
In the reported quarter, the company’s bookings totaled $1.34 billion, down 6.3% from the year-ago quarter. However, the metric came in more than $100 million above the higher end of the company’s guided range courtesy of robust levels of bookings in Managed services in the quarter under review.
Segmental Performance
Licensed software revenues fell 22.8% to $152.2 million, as a decline in traditional license software offset strong growth in SaaS offerings.
Technology resale revenues were $42.1 million, down 30.7% on a year-over-year basis.
Revenues from Subscriptions were $92.1 million, up 2.5% year over year.
Professional services’ revenues totaled $461.1 million, down 4.9% from the prior-year quarter number. The downside can be attributed to impact of the pandemic on project activity, lower third-party services, and the termination of the large RevWorks agreement.
Revenues at the Managed services unit amounted to $307.2 million, up 3.2% from the prior-year quarter.
Support and maintenance revenues were $274 million, down 0.9% year over year.
Reimbursed travel revenues amounted to $1.7 million, reflecting year-over-year decline of 92.8%. This was owing to travel restrictions that were in place in toward the end of first-quarter 2020.
Margins
In the quarter under review, gross profit was $1.12 billion, down 3.8% year over year. Gross margin was 84.1%, up 290 basis points (bps) on a year-over-year basis.
General and administrative expenses decreased 10.3% to $134.3 million. Further, software development expenses fell 1.2% to $185.3 million.
Adjusted operating income totaled $245.3 million, down 4.8% from the prior-year quarter. Adjusted operating margin expanded 40 bps to 18.4% during the reported quarter.
Q3 Guidance
For third-quarter 2020, Cerner expects revenues between $1.35 billion and $1.40 billion. The Zacks Consensus Estimate for revenues stands at $1.39 billion.
For third-quarter 2020 adjusted earnings per share is projected between 70 cents and 74 cents. The consensus mark for earnings is pegged at 71 cents.
New business bookings for third-quarter 2020 are estimated between $1.35 billion and $1.55 billion.
For full-year 2020, the company anticipates revenues in the range of $5.45-$5.55 billion (down from the previously guided range of $5.55-$5.70 billion).
For the full year, adjusted earnings per share are expected between $2.80 and $2.88 (narrowed from the prior guided band of $2.78-$2.90).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
Currently, Cerner has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Cerner has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.