April Monthly Report & Current Outlook
I reiterate a BUY rating a Cerner.
Cerner released Quarter 1 earnings results on May 5th, 2016. Cerner opened on the market at $53.25 on May 6th, 2016. They missed their revenue guidance due to the fact that their hardware sales didn’t materialize as expected. Cerner decreased their guidance for revenue next quarter by 25 million to ensure that they will not miss earnings. Management has expressed difficulty in the ability to predict hardware sales so that is why they wanted to go with a conservative outlook. Cerner has strong revenue visibility as 79% of backlog is going to be realized. Since this signifies the majority of Cerner’s business, it provides a lot of room for revenue deriving from technology resale to beat expectation by.
On April 8th, 2016, we bought 60 shares of Cerner at a price of $56.40. Cerner closed the month of April at $56.14, representing a -0.46% decrease in the stock price. With a price target of $72.41, 29.98% upside still remains. Again, with a price target of $72.41, buying in at the current price of $55.43 would generate 30.63% upside. I believe this is an ideal time to complete our full position Cerner.
The main reasons include the organic growth of the business, competitive advantage, and untapped markets. Organic growth represents that many of their key recent partnerships and acquisitions will materialize and see the market in future quarters. I believe these have not been priced into the stock and when these revenues are realized, it will result in the price of the stock increasing. Cerner announced on April 20th, an acquisition of Universal Health Systems. Universal Health systems provide great expertise from a billings perspective. Cerner has a lot of experience with the service and development portion of the business so this strategic acquisition supplements Cerner’s model perfectly. As the industry digitalization of the healthcare industry continues to evolve, consumers will need an integrated clinical and financial system together. This will ultimately lead to the development and implementation of bundle payments and at risk models.
There are opportunities in untapped markets in the industry that Cerner is putting itself in as strong position to take advantage of. The main untapped market is state and local governments. Management expressed confidence that the public is due to hear about key business in this market. Cerner takes pride in their data liquidity. Data liquidity is their ability to easily access and handle the diversity of the data. For example, technology systems within companies vary drastically.