Barron’s on Cerner

In this weekend’s Barron’s, Vito J. Racanelli looks at Cerner (CERN) and sees a bargain.

The market’s love affair with health-care stocks has grown frosty. Since mid-July the sector is the market’s worst performer, down 13%. Shares of Cerner (ticker: CERN), a provider of health-care information technology have fallen even more, losing about a third of their value in the past 12 months to $51.46. The stock isn’t much above where it traded three years ago, and it looks invitingly cheap.

Cerner hasn’t helped its case by missing revenue expectations in the past few quarters. On Feb. 16, when reporting fourth- quarter results, it tweaked its 2016 sales projection, guiding for a range of $4.9 billion to $5.1 billion, versus a prior forecast of $5 billion. Revenue of $4.4 billion in 2015 was below an earlier projection of $4.8 billion to $5 billion.

Bookings continue to grow nicely, up 16% in the fourth quarter to $1.35 billion—but again, below the company’s earlier guidance of $1.45 billion to $1.55 billion. The drop in Cerner’s price/earnings ratio to the low 20s from an average P/E above 30 is deserved.

Nevertheless, the company’s still-robust earnings visibility, a hefty $14.2 billion backlog, and ongoing demand to reduce the country’s rampaging health-care costs suggest that Cerner could turn out to be a quiet winner for long-term-oriented investors.

Posted by on March 28th, 2016 at 9:40 am

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