Cerner Corporation (CERN - Free Report) is an underperforming company in the MedTech space. Stiff competition and a soft first quarter of 2018 are major headwinds at the moment.
In the past year, Cerner’s stock has lost 5%, against the industry’s rally of 6.3%.
In the last 30 days, 11 estimates moved south versus no upward revision, indicating analysts’ pessimism regarding the stock. The Zacks Consensus Estimate for earnings per share dropped 7.6% to 61 cents. Cerner has a Zacks Rank #5 (Strong Sell), which indicates possibilities of underperformance in the near term.
Therefore, it is time to dump the stock from your portfolio.
Why Should You Offload?
For the second quarter of 2018, Cerner expects revenues within $1.31 billion to $1.36 billion. The Zacks Consensus Estimate for second-quarter revenues is pegged at $1.38 billion, within the given range.
Cerner expects 2018 revenues in the range of $5.33-$5.45 billion, down from a range of $5.45 billion to $5.65 billion. Notably, for the current year, the Zacks Consensus Estimate for revenues of $5.38 billion, within the guided range.
For 2018, Cerner expects adjusted earnings per share of $2.45-$2.55, down from the prior guidance of $2.57-$2.73.
Declining Q1 Results
In the first quarter of 2018, Cerner’s sales in Licensed Software fell 5.3% to $134.8 million on a year-over-year basis. Lower-than expected subscription bookings impeded growth in the segment.
Notably, subscriptions accounted for revenues of $76.6 million, down 32.4% on a year-over-year basis.
Moreover, operating margin in the last reported quarter was 15.1%, down 427 basis points (bps) on a year-over-year basis. The downside can be attributed to a 6% year-over-year rise in operating expenses. The upside was led by personnel expenses related to revenue-generating associates and non-cash items.
The company had long-term debt of $527 million at the end of the first quarter of 2018.
At present, Cerner faces aggressive competition in the industry. Reputed names like Allscripts Healthcare Solutions, Epic Systems, GE Healthcare Technologies, McKesson Corp and Quality Systems pose significant challenge apart from denting pricing and margins.
A few better-ranked stocks in the broader medical sector are Abiomed, Inc. (ABMD - Free Report) , Genomic Health, Inc. (GHDX - Free Report) and Intuitive Surgical (ISRG - Free Report) .
Abiomed has an estimated long-term earnings growth rate of 27%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Genomic Health has an expected earnings growth rate of 187.5%. The stock flaunts a Zacks Rank #1.
Intuitive Surgical has an expected long-term earnings growth rate of 12.1% and sports a Zacks Rank #1.
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