Morningstar | Cerner Reports a Solid Quarter as the Firm Makes Progress in a Dynamic Market
Cerner reported results that fell in line with our expectations, and we are reiterating our $66 fair value estimate and wide moat rating for the firm. The firm experienced strong growth in both revenue and bookings for the quarter, reversing the disappointing growth numbers it has reported over the past several quarters. We find this development a welcome change from what has been a recent period of significant choppiness for the firm. We believe Cerner may now have a better handle on the flow of its operations, given a rapidly changing healthcare IT, or HCIT, market. However, we approach this quarter's positive developments with caution, given the volatility of recent results. Adding to this uncertainty was a material decrease in profitability as operating margin compressed to 15.2% from 19.3% a year ago. Management stated that it is confident this trend will reverse by the end of the year, and that it expects margins to expand in 2019. From our perspective, the firm’s investment in realigning its operations has depressed margins this year, but will eventually yield increased operational efficiency. Given the highly scalable nature of HCIT services, we expect profits to move above the 20% mark by 2020 and have modeled this into our forecast.Management also mentioned that it is building its Medicare-related services through a new records management product suite called Maestro Advantage. We believe this is a robust opportunity for Cerner, given our strong growth outlook for this segment of the healthcare market and the need for both providers and insurers to better manage this book of business. In addition, Cerner’s major contracts with the Department of Defense and Department of Veterans Affairs provide a strong platform. These major relationships will not only allow the firm to build a strong foundation from these major contracts, but will also help it to develop and learn from these complex technology infrastructure builds. From our perspective, this dynamic will assist Cerner in servicing its current client book and position it advantageously for new client wins down the road.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.