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Cerner Continues to Rise After Siemens Deal

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Shares of Cerner Corporation (CERN - Free Report) continue to rise after it broke the news of its deal to acquire the health care information technology (HCIT) business, Siemens Health Services, from German industrial conglomerate Siemens AG (SIEGY - Free Report) for $1.3 billion on Aug 5. After the announcement, shares of the company rose 2.3%.

According to CERN CEO and Founder, billionaire Neal Patterson, the acquisition will improve the scale of its business. Post-acquisition, the combined entity will have 20,000 associates in more than 30 countries, and 18,000 facilities.

The acquisition of Malvern, PA-based Siemens Health Services will lift North Kansas City, MO-based CERN’s sales from $3 billion in 2013 to more than $4.5 billion this year. Both the companies will have an annual research and development investment of $650 million.

All these benefits are definitely going to deliver a heavy blow to CERN’s competitors such as dominant player privately-held Epic Systems, and Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) and athenahealth (ATHN - Free Report) as well as new entrants including NantHealth and Flatiron Health.

The acquisition is expected to be accretive to Cerner's adjusted earnings per share by more than 15 cents in 2015 and more than 25 cents in 2016. The acquisition is expected to close in the first quarter of next year.

As part of the deal, Siemens has also agreed to form a strategic alliance with CERN to invest in projects for developing the electronic health record (EHR) system. Both the companies have agreed to contribute up to $50 million per year for the next three years to fund projects for their mutual benefit.

CERN posted a 15.6% year-over-year rise in earnings per share to 37 cents for the second quarter of 2014 from 32 cents in the comparable quarter of 2013 and beat the Zacks Consensus Estimate by a penny. Net earnings rose 14.3% to $129.0 million from $112.9 million in the second quarter of 2013.

Revenues in the quarter grew 20.4% to $851.8 million, exceeding the Zacks Consensus Estimate of $810 million. The increase can be attributed to stronger revenues from all the businesses.

For the third quarter of 2014, CERN anticipates revenues between $840 and $870 million, the midpoint of which implies a growth of 17% over the 2013-quarter. Adjusted earnings are expected between 38 and 39 cents per share, including share based compensation expense. These compared with the Zacks Consensus Estimates of $855 million and 39 cents for revenues and earnings per share, respectively for the quarter.

CERN also expects 2014-third quarter new business bookings between $1 and $1.1 billion, the mid-point of which reflects a 13% growth over the prior-year quarter.

For full year 2014, CERN upgraded revenues guidance to the range of $3.3 to $3.4 billion from the prior range of $3.25 to $3.4 billion. Adjusted earnings are also expected to be higher at $1.64–$1.67, compared with the prior range of $1.63 to $1.67, excluding share based compensation expense (which is expected to be 11 to 12 cents for the full year). These compared with the Zacks Consensus Estimates of $3.4 billion and $1.54 for revenues and earnings per share, respectively for the year.

Currently, CERN retains a Zacks Rank #3 (Hold).

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