Morningstar | Cerner: Intent to Keep Pace With the Evolving Healthcare Market; $78 Fair Value Estimate. See Updated Analyst Note from 13 Jun 2019
We assign Cerner a wide moat and stable trend rating and are increasing our fair value estimate to $78 per share from $66 largely due to stronger projected cost reductions than we had previously estimated.Cerner Corporation is a leading healthcare information technology (HCIT) service provider with an installed base of more than 27,500 facilities worldwide. It is rivaled domestically by Epic, a privately owned HCIT company, as well as several significantly smaller competitors. As an early mover, Cerner has benefited from the proliferation of healthcare digitization fueled by federal funding and has secured more than one quarter of the healthcare EHR (electronic health record) market. Annually, the company generates revenue in excess of $5 billion, consisting of nearly 80% recurring and 20% non-recurring revenue.
Over the last 20 years, the firm has been focused on acute medical records, but with the maturation of the industry, Cerner has expanded its portfolio of services to include ambulatory (outpatient) and analytics. The expansion into ambulatory was primarily driven by the preference for a single source provider with inpatient and outpatient capabilities. Additionally, Cerner has started to cross-sell incremental services to fortify already high retention rates. Incremental services are largely recurring in nature and include analytics, revenue cycle management, telehealth, and IT outsourcing.
We expect Cerner will invest in further improving interoperability capabilities across healthcare systems and providers. The employment of analytical tools will be critical to better positioning Cerner as a key partner in navigating the evolution of payment systems that will increasingly de-emphasize the current fee for service model in favor or fee for value. Key partnerships to supplement the seamless platform include Starboard (operational), Lumeris (population health), Carevive (cancer care management), and Surescripts & covermymeds (drug price transparency).
Cerner designs, develops, markets, installs, hosts and supports health care information technology, health care devices, hardware and content solutions for health care organizations and consumers. The company also provides a range of services, including implementation and training, remote hosting, operational management services, revenue cycle services, support and maintenance, transaction processing, employer health centers, employee wellness programs and third party administrator services for employer-based health plans. The company has two operating segments: Domestic, which includes business activity in the United States; and International, which includes business activity outside the United States.
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