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Cerner (CERN) Down 6.4% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Cerner (CERN - Free Report) . Shares have lost about 6.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cerner due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cerner Q4 Earnings Match Estimates, Revenues Beat

Cerner Corporation reported fourth-quarter 2020 adjusted earnings of 78 cents per share, which matched the Zacks Consensus Estimate. The bottom line improved 4% from the prior-year quarter.

For full-year 2020, the company reported adjusted earnings per share of $2.84, up 5.9% from 2019. The figure came in line with the consensus mark.

Revenue Details

The company reported revenues of $1.39 billion, which beat the Zacks Consensus Estimate by 0.1%. However, the top line declined 3.2% from the year-ago quarter.

For the full-year 2020, the company delivered revenues of $5.51 billion, down 3.3% from 2019 but outpaced the consensus mark by 0.2%.

Revenues by Geography

Per management, U.S. revenues grossed $1.23 billion, down 3% from the prior-year quarter.

Non-U.S. revenues fell 3% to $161 million from the year-ago quarter primarily due to the divestiture of assets in Germany and Spain.

Bookings

In the reported quarter, the company’s bookings totaled $1.68 billion, up 0.6% from the year-ago quarter. Also, the metric came within the company’s guided range.

Segmental Performance

Licensed software revenues were $174.3 million, which dipped 0.1% from the year-ago quarter.

Technology resale revenues were $55.9 million, down 7.5% on a year-over-year basis.

Revenues from Subscriptions were $98.4 million, up 6.1% year over year.

Professional services’ revenues totaled $478.1 million, down 6.1% from the prior-year quarter number. The downside can be attributed to impact of pandemic divestitures, lower third-party services, and the termination of the large RevWorks agreement in 2019.

Revenues at the Managed services unit amounted to $317.1 million, up 2.5% from the prior-year quarter.

Support and maintenance revenues were $263.1 million, down 3.9% year over year.

Reimbursed travel revenues amounted to $8.2 million, reflecting year-over-year decline of 62.7% as a result of the ongoing pandemic-led travel restrictions.

Margins

In the quarter under review, gross profit was $1.16 billion, down 0.4% year over year. Gross margin was 83.2%, up 240 basis points (bps) on a year-over-year basis.

General and administrative expenses decreased 17.7% to $100.6 million. However, software development expenses rose 5.2% to $197.9 million.

Operating income totaled $177.5 million, down 2.9% from the prior-year quarter. Operating margin remained flat on a year-over-year basis to 12.7%.

2021 Guidance

For first-quarter 2021, Cerner anticipates revenues between $1.37 billion and $1.42 billion. The Zacks Consensus Estimate for revenues stands at $1.41 billion.

For first-quarter 2021 adjusted EPS is projected between 72 cents and 76 cents. The consensus mark for earnings is pegged at 76 cents.

New business bookings for first-quarter 2021 are estimated between $1.15 billion and $1.35 billion.

For full-year 2021, revenues are projected to be $5.75-$5.95 billion. The Zacks Consensus Estimate for revenues stands at $5.69 billion.

Adjusted EPS is expected to be band of $3.10-$3.20. The consensus mark for earnings is pegged at $3.21.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -7.07% due to these changes.

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 second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise 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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