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Cerner (CERN) Down 1.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Cerner (CERN - Free Report) . Shares have lost about 1.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Cerner's Q4 Earnings In Line With Estimates, Guidance Strong

Cerner reported fourth-quarter 2018 adjusted earnings of 63 cents per share, in line with the Zacks Consensus Estimate. The bottom line increased from the prior-year quarter’s figure by 8.6%.

Revenues totaled $1.37 billion, which improved 3.9% year over year but fell short of the Zacks Consensus Estimate of $1.39 billion.

Revenues by Geography

Per management, U.S. revenues grossed $1.21 billion, up 4% year over year.

Non-U.S. revenues surged by $1 million from the year-ago quarter figure to $161 million. The uptick was mainly driven by strong results in the United Kingdom and Sweden.

Bookings Detail

In the reported quarter, Cerner’s bookings totaled $1.96 billion, down from $2.33 billion in the same quarter last year.

However, this is the second-highest bookings quarter in Cerner’s history.

Per management, Cerner registered bookings from long-term contracts (including 6 contracts that were more than $75 million) and multiple transactions.

Segmental Performance

Licensed software revenues fell 1.8% to $166.5 million. Per management, the small scale of the EHR replacement market reduces Cerner’s opportunity in the traditional software sector. However, the company expects SaaS to continue growing.

Technology resale revenues came in at $46.1 million, down 42% on a year-over-year basis. The metric also came below management’s expectations.

Revenues from Subscriptions grossed $87 million, down 24.1% year over year.

Professional services revenues totaled $466.2 million, up 13.9% from the prior-year quarter number. Per management, this upside was mainly driven by Cerner’s Works business.

Revenues at the Managed services unit summed $299.1 million, up 14.1% from the prior-year quarter. Per management, the improvement was driven by solid year-to-date bookings.

Support and maintenance revenues came in at $276.8 million, up 5.8% year over year.

Reimbursed travel revenues amounted to $24.1 million, mirroring a 14.5% decline year over year.

Margins

In the quarter under review, gross profit summed $1.13 billion, up 4.1% year over year. Gross margin was 82.6%, flat on a year-over-year basis.

General and administrative expenses rose 7.4% to $98.9 million. Further, Software development expenses increased 11.7% to $181.5 million.

Adjusted operating margin contracted 180 basis points (bps) to 18.7% during the quarter.

Guidance

For the first quarter of 2019, Cerner expects revenues between $1.37 billion and $1.42 billion. Adjusted earnings per share is expected to be 60-62 cents. Business bookings are expected in the range of $1.10-$1.30 billion. The midpoint of this range reflects a 14% decrease year over year.

For 2019, revenues are expected between $5.65 billion and $5.85 billion. Adjusted earnings per share is expected between $2.57 and $2.67.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Cerner has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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. Notably, Cerner has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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