Friday, September 27, 2013

Cerner Announces Intermountain Partnership, Shares up ~8%

Cerner Corporation traded up today ~8% after announcing a multi-year strategic partnership with Intermountain Healthcare. The partnership will implement Cerner’s electronic medical record and revenue cycle solutions across all of the Utah-based firm’s 22 hospital and 185 clinics. The collaboration will utilize Intermountain’s industry leading clinical processes and data warehouse. In addition, the team seeks to build a new set of tools for a post-fee-for-service world in areas such as activity-based costing. As part of the Intermountain agreement Cerner intends to relocated a couple key executives to Salt Lake City to help implement the new collaboration. The deal comes as a victory amongst Epic who was beat out for the contract “up for grabs.” The deal is estimated to be worth in the range of $75-$100MM of revenue opportunity beginning in 2014. We have increased both our FY 14 and FY15 EPS estimates $.04 to reflect the revenue opportunity. Our price target increase to $58.92  from $57.55 represents a 32.6x multiple to our FY14 EPS estimate of $1.81 up from $1.77. Currently the stock is valued at 43.6x ttm earnings around $53.71 and ~10% away from our updated price target.

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