Cerner: Spectacular Growth In Healthcare IT

Cerner Corporation designs, develops, markets, installs, hosts, and supports healthcare information technology, healthcare devices, and content solutions for healthcare organizations and consumers worldwide. The company is diversified on a global basis as well as locally; it serves both the ambulatory outfits as well as hospitals.

It wants systems that automate records in hospitals as well as doctors offices; in essence it wants to take the pen out of the doctor's hands and in doing so reduce errors. For one, doctors are known for having terrible handwriting, and also in many instances they forget to renew old prescriptions; in both instances Cerner can come to the rescue.

Cerner is also a leader in billing software; its scalable millennium software is already licensed by over 9000 facilities all over the globe. 2,600 hospitals, 3,500 physicians, 500 ambulatory outfits, 800 health facilities, and 1,600 pharmacies utilize this software.

The federal government is seeking to cut soaring health costs, and one way to do this is through automation. This move by the federal government to automate records will be strongly beneficial for Cerner.

Business is booming for Cerner. Earnings have jumped 30% and revenues have risen by 24%. Operating margins are almost 21% and profit margins are at 15%. Last quarter it landed over 23 new contracts worth over $5 million, up from 16 in the same time period last year. It is also aggressively expanding overseas. Overseas business now accounts for over 16% of its total revenue.

Cerner is one of only two vendors gaining market share in the medium to large hospital sector; the other is EPIC. Cerner's ability to deliver results for its clients at a predictable cost is what sets it apart from the rest of the competition.

The Health Information Technology for Economic and Clinical Health provisions within ARRA includes substantial funds as incentives for healthcare organizations to modernize and improve their performance through meaningful adaptation of Health care information technology. These incentives are driving demand for HCIT services and Cerner is well positioned to benefit from this surge in demand.

Its ambulatory segment performed very well in 2011; bookings were up by 60%. Cerner has continually grown its business through organic means; revenues have more than quadrupled from $560 million in 2001 to $2.2 billion in 2011.

Company: Cerner Corp (CERN)

Free cash flow = $420 million

Basic Key ratios

• Percentage Held by Insiders = 15.09
• Market Cap ($mil) = 12026
• Number of Institutional Sellers 12 Weeks = 2
• 3 Month % Chg Short Interest = n/a

Growth

• Net Income ($mil) 12/2011 = 237
• Net Income ($mil) 12/2010 = 193
• Net Income ($mil) 12/2009 = 188
• 12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = 29.53
• Q Net Incm this Q/ same qtr yr ago = 30.12

Total cash flow from operating activities

• 2009 = $281.8 million
• 2010 = $347.2 million
• 2011 = $456.4 million

• EBITDA ($mil) 12/2011 = 556
• EBITDA ($mil) 12/2010 = 482
• EBITDA ($mil) 12/2009 = N/A
• Net Incm Rpt Qtr ($mil) = 92
• Anl Net Incm this Yr/ Net Incm last Yr = 29.23
• Cash Flow ($/sh) 12/2011 = 2.6
• Cash Flow ($/sh) 12/2010 = 2.35
• Cash Flow ($/sh) 12/2009 = N/A
• Sales ($mil) 12/2011 = 1850
• Sales ($mil) 12/2010 = 1672
• Sales ($mil) 12/2009 = N/A

Performance

• % Ch Price 52 Wks Rel to S&P 500 = 40.39
• Std Dev Target Price Est = 8.62
• Avg EPS Surprise Last 4 Qtr = 3.15
• EPS % Change F2/F1 = 21.66
• Next 3-5 Yr Est EPS Gr rate = 19.8
• Std Dev 3-5 Yr Est EPS Gr rate = 3.19
• EPS Gr Q(1)/Q(-3) = -129.27
• 5 Yr Hist EPS Gr 12/2011 = 20.95
• 5 Yr Hist EPS Gr 09/2011 = N/A
• ROE 5 Yr Avg 12/2011 = 13.2
• ROE 5 Yr Avg 09/2011 = 13.13
• ROE 5 Yr Avg 06/2011 = N/A
• Return on Investment 12/2011 = 13.32
• Return on Investment 09/2011 = 13.1
• Return on Investment 06/2011 = N/A
• Debt/Tot Cap 5 Yr Avg 12/2011 = 9.05
• Debt/Tot Cap 5 Yr Avg 09/2011 = 9.74
• Debt/Tot Cap 5 Yr Avg 06/2011 = N/A
• Current Ratio 12/2011 = 3.77
• Current Ratio 09/2011 = 3.74
• Current Ratio 06/2011 = N/A
• Curr Ratio 5 Yr Avg = 3.16
• Quick Ratio = 3.37
• Cash Ratio = 2.09
• Interest Coverage 12/2011 = 92.23
• Interest Coverage 09/2011 = 104.6
• Interest Coverage 06/2011 = N/A

Valuation

• Book Value Qtr ($/sh) 12/2011 = 13.06
• Book Value Qtr ($/sh) 09/2011 = 12.62
• Book Value Qtr ($/sh) 06/2011 = N/A
• Anl EPS before NRI 12/2007 = 0.76
• Anl EPS before NRI 12/2008 = 1.04
• Anl EPS before NRI 12/2009 = 1.04
• Anl EPS before NRI 12/2010 = 1.16
• Anl EPS before NRI 12/2011 = 1.39
• Price/ Book = 5.2
• Price/ Cash Flow = 23.16
• Price/ Sales = 5.46
• EV/EBITDA 12 Mo = 16.62
• P/E/G F1 = 1.66
• Q1 Std Dev/ Consensus = 0.02
• R-squared EPS Growth 12/2011 = 0.99
• R-squared EPS Growth 09/2011 = N/A
• P/E F1/ LT EPS Gr = 1.66
• Std Dev Cons Current Qtr = 0.01
• Median Est Next Qtr = 0.51
• # Anlst in Cons Q3 = 12

Related companies (Peer Group)

Company: Mmodal Inc (MODL)

Operating Cash Flow = 1.13B

Basic Key ratios

• Percentage Held by Insiders = N/A
• Number of Institutional Sellers 12 Weeks = 1
• 3 Month % Chg Short Interest = n/a

Growth

• Net Income ($mil) 12/2011 = 9
• Net Income ($mil) 12/2010 = 1
• Net Income ($mil) 12/2009 = 1
• 12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = N/A
• Q Net Incm this Q/ same qtr yr ago = 250.08
• EBITDA ($mil) 12/2011 = 68
• EBITDA ($mil) 12/2010 = 46
• EBITDA ($mil) 12/2009 = 46
• Cash Flow ($/sh) 12/2011 = 1.59
• Cash Flow ($/sh) 12/2010 = N/A
• Cash Flow ($/sh) 12/2009 = N/A
• Sales ($mil) 12/2011 = 417
• Sales ($mil) 12/2010 = 354
• Sales ($mil) 12/2009 = 354

Dividend history

• Div Yield = 0
• Div Yld 5 Yr Avg 12/2011 = N/A
• Forward Yield = N/A
• Div 5yr Growth 12/2011 = N/A

Dividend sustainability

• Payout Ratio 09/2011 = 0
• Payout Ratio 5 Yr Avg 12/2011 = N/A
• Change in Payout Ratio = N/A

Performance

• % Ch Price 52 Wks Rel to S&P 500 = N/A
• Avg EPS Surprise Last 4 Qtr = N/A
• EPS % Change F2/F1 = -8.75
• Next 3-5 Yr Est EPS Gr rate = 10
• EPS Gr Q(1)/Q(-3) = 1-161.54
• 5 Yr Hist EPS Gr 12/2011 = N/A
• ROE 5 Yr Avg 12/2011 = N/A
• Return on Investment 12/2011 = 14.91
• Return on Investment 09/2011 = 15.6
• Debt/Tot Cap 5 Yr Avg 12/2011 = N/A
• Current Ratio 12/2011 = 1.32
• Curr Ratio 5 Yr Avg = N/A
• Quick Ratio = 1.67
• Cash Ratio = 0.87
• Interest Coverage 12/2011 = 1.24
• Interest Coverage 09/2011 = 1.9

Valuation

• Book Value Qtr ($/sh) 12/2011 = 2
• Book Value Qtr ($/sh) 09/2011 = 1.1
• Anl EPS before NRI 12/2007 = N/A
• Anl EPS before NRI 12/2008 = N/A
• Anl EPS before NRI 12/2009 = N/A
• Anl EPS before NRI 12/2010 = N/A
• Anl EPS before NRI 12/2011 = 0.58
• Price/ Book = 5.36
• Price/ Cash Flow = 6.72
• Price/ Sales = 1.37
• EV/EBITDA 12 Mo = 12.48
• P/E/G F1 = 0.88
• Q1 Std Dev/ Consensus = 0.03
• Median Est Next Qtr = 0.27
• # Anlst in Cons Q3 = 2

Company: Omnicell Inc (OMCL)

Operating Cash Flow = N/A

Basic Key ratios

• Percentage Held by Insiders = 9.26
• Number of Institutional Sellers 12 Weeks = 8
• 3 Month % Chg Short Interest = n/a

Growth

• Net Income ($mil) 12/2011 = 5
• Net Income ($mil) 12/2010 = 0
• Net Income ($mil) 12/2009 = N/A
• 12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = 112.37
• Q Net Incm this Q/ same qtr yr ago = 515.77
• EBITDA ($mil) 12/2011 = 19
• EBITDA ($mil) 12/2010 = 11
• EBITDA ($mil) 12/2009 = N/A
• Cash Flow ($/sh) 12/2011 = 0.4
• Cash Flow ($/sh) 12/2010 = 0.31
• Cash Flow ($/sh) 12/2009 = N/A
• Sales ($mil) 12/2011 = 222
• Sales ($mil) 12/2010 = 213
• Sales ($mil) 12/2009 = N/A

Dividend history

• Div Yield = 0
• Div Yld 5 Yr Avg 12/2011 = 0
• Forward Yield = N/A
• Div 5yr Growth 12/2011 = N/A

Dividend sustainability

• Payout Ratio 09/2011 = 0
• Payout Ratio 5 Yr Avg 12/2011 = 0
• Change in Payout Ratio = 0

Performance

• % Ch Price 52 Wks Rel to S&P 500 = 13.61
• Avg EPS Surprise Last 4 Qtr = 32.29
• EPS % Change F2/F1 = 26.83
• Next 3-5 Yr Est EPS Gr rate = 19
• EPS Gr Q(1)/Q(-3) = 5-100.00
• 5 Yr Hist EPS Gr 12/2011 = -31.02
• ROE 5 Yr Avg 12/2011 = 6.11
• Return on Investment 12/2011 = 2.79
• Return on Investment 09/2011 = 2
• Debt/Tot Cap 5 Yr Avg 12/2011 = 0
• Current Ratio 12/2011 = 4.6
• Curr Ratio 5 Yr Avg = 4.28
• Quick Ratio = 4.45
• Cash Ratio = 3.82
• Interest Coverage 12/2011 = N/A
• Interest Coverage 09/2011 = N/A

Valuation

• Book Value Qtr ($/sh) 12/2011 = 8.39
• Book Value Qtr ($/sh) 09/2011 = 8.19
• Anl EPS before NRI 12/2007 = 0.7
• Anl EPS before NRI 12/2008 = 0.38
• Anl EPS before NRI 12/2009 = 0.38
• Anl EPS before NRI 12/2010 = 0.01
• Anl EPS before NRI 12/2011 = 0.13
• Price/ Book = 1.91
• Price/ Cash Flow = 41.19
• Price/ Sales = 2.2
• EV/EBITDA 12 Mo = 18.33
• P/E/G F1 = 2.1
• Q1 Std Dev/ Consensus = 0.15
• Median Est Next Qtr = 0.1
• # Anlst in Cons Q3 = 6

Company: Allscripts Hlth (MDRX)

Operating Cash Flow = 186.67M

Basic Key ratios

• Percentage Held by Insiders = 0.75
• Number of Institutional Sellers 12 Weeks = 1
• 3 Month % Chg Short Interest = n/a

Growth

• Net Income ($mil) 12/2011 = -6
• Net Income ($mil) 12/2010 = 0
• Net Income ($mil) 12/2009 = N/A
• 12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = 156.8
• Q Net Incm this Q/ same qtr yr ago = 519.36
• EBITDA ($mil) 12/2011 = 57
• EBITDA ($mil) 12/2010 = 0
• EBITDA ($mil) 12/2009 = N/A
• Cash Flow ($/sh) 12/2011 = 0.86
• Cash Flow ($/sh) 12/2010 = 0.59
• Cash Flow ($/sh) 12/2009 = N/A
• Sales ($mil) 12/2011 = 934
• Sales ($mil) 12/2010 = 705
• Sales ($mil) 12/2009 = N/A

Dividend history

• Div Yield = 0
• Div Yld 5 Yr Avg 12/2011 = 0
• Forward Yield = N/A
• Div 5yr Growth 12/2011 = N/A

Dividend sustainability

• Payout Ratio 09/2011 = 0
• Payout Ratio 5 Yr Avg 12/2011 = 0
• Change in Payout Ratio = 0

Performance

• % Ch Price 52 Wks Rel to S&P 500 = -6.96
• Avg EPS Surprise Last 4 Qtr = 1.58
• EPS % Change F2/F1 = 24.19
• Next 3-5 Yr Est EPS Gr rate = 18.36
• EPS Gr Q(1)/Q(-3) = -105
• 5 Yr Hist EPS Gr 12/2011 = 10.19
• ROE 5 Yr Avg 12/2011 = 13.19
• Return on Investment 12/2011 = 8.31
• Return on Investment 09/2011 = 7.76
• Debt/Tot Cap 5 Yr Avg 12/2011 = 19.99
• Current Ratio 12/2011 = 1.28
• Curr Ratio 5 Yr Avg = 1.75
• Quick Ratio = 1.34
• Cash Ratio = 0.62
• Interest Coverage 12/2011 = 10.22
• Interest Coverage 09/2011 = 6.37

Valuation

• Book Value Qtr ($/sh) 12/2011 = 7.66
• Book Value Qtr ($/sh) 09/2011 = 7.4
• Anl EPS before NRI 12/2007 = 0.39
• Anl EPS before NRI 12/2008 = 0.54
• Anl EPS before NRI 12/2009 = 0.54
• Anl EPS before NRI 12/2010 = 0.58
• Anl EPS before NRI 12/2011 = 0.67
• Price/ Book = 2.51
• Price/ Cash Flow = 19.32
• Price/ Sales = 2.56
• EV/EBITDA 12 Mo = 68.11
• P/E/G F1 = 1.15
• Q1 Std Dev/ Consensus = 0.07
• Median Est Next Qtr = 0.24
• # Anlst in Cons Q3 = 7

Company: Quality Sys (QSII)

Operating Cash Flow = 71.50M

Basic Key ratios

• Percentage Held by Insiders = 33.26
• Number of Institutional Sellers 12 Weeks = 1
• 3 Month % Chg Short Interest = n/a

Growth

• Net Income ($mil) 12/2011 = 62
• Net Income ($mil) 12/2010 = 48
• Net Income ($mil) 12/2009 = 46
• 12mo Net Incm this Q/ 12mo Net Incm 4Q's ago = 41.03
• Q Net Incm this Q/ same qtr yr ago = 20.39
• EBITDA ($mil) 12/2011 = 109
• EBITDA ($mil) 12/2010 = 88
• EBITDA ($mil) 12/2009 = 82
• Cash Flow ($/sh) 12/2011 = 1.34
• Cash Flow ($/sh) 12/2010 = 1.06
• Cash Flow ($/sh) 12/2009 = 1
• Sales ($mil) 12/2011 = 353
• Sales ($mil) 12/2010 = 292
• Sales ($mil) 12/2009 = 246

Dividend history

• Div Yield = 1.6
• Div Yld 5 Yr Avg 12/2011 = 2.15
• Forward Yield = 1.6
• Div 5yr Growth 12/2011 = 8.03

Dividend sustainability

• Payout Ratio 09/2011 = 0.59
• Payout Ratio 5 Yr Avg 12/2011 = 0.63
• Change in Payout Ratio = -0.14

Performance

• % Ch Price 52 Wks Rel to S&P 500 = 8.72
• Avg EPS Surprise Last 4 Qtr = -9.09
• EPS % Change F2/F1 = 22.54
• Next 3-5 Yr Est EPS Gr rate = 19.73
• EPS Gr Q(1)/Q(-3) = -120
• 5 Yr Hist EPS Gr 12/2011 = 14.98
• ROE 5 Yr Avg 12/2011 = 32.24
• Return on Investment 12/2011 = 31.73
• Return on Investment 09/2011 = 30.96
• Debt/Tot Cap 5 Yr Avg 12/2011 = 0
• Current Ratio 12/2011 = 2.39
• Curr Ratio 5 Yr Avg = 2.28
• Quick Ratio = 2.05
• Cash Ratio = 1.03
• Interest Coverage 12/2011 = N/A
• Interest Coverage 09/2011 = N/A

Valuation

• Book Value Qtr ($/sh) 12/2011 = 4.59
• Book Value Qtr ($/sh) 09/2011 = 4.29
• Anl EPS before NRI 12/2007 = 0.61
• Anl EPS before NRI 12/2008 = 0.71
• Anl EPS before NRI 12/2009 = 0.84
• Anl EPS before NRI 12/2010 = 0.86
• Anl EPS before NRI 12/2011 = 1.08
• Price/ Book = 9.11
• Price/ Cash Flow = 32.77
• Price/ Sales = 6.16
• EV/EBITDA 12 Mo = 22.39
• P/E/G F1 = 1.56
• Q1 Std Dev/ Consensus = 0.02
• Median Est Next Qtr = 0.39
• # Anlst in Cons Q3 = 18

Conclusion

The health care sector is notorious for under-investing in IT, and it's now time for them to play catch up. With the incentives being offered for companies that automate and improve their systems through HCIT, we feel that CERN is one of the best positioned companies to take advantage of this surge in demand for HCIT services.

Additional factors that make CERN attractive

• Net income and operating cash flow have been surging for the past few years
• It has a quarterly earnings growth rate of 29%
• A strong quarterly revenue growth rate of 23%
• Free cash flow of $420 million
• A good current ratio of 3.77
• An excellent quick ratio of 3.37
• A very strong interest coverage ratio of 92.23
• CERN continues to improve its products; today it announced the release of Millennium + TM. It combines the enterprise platform with a secure Cerner cloud and in doing so significantly enhances the users experience; according to the CERN the new service is " is fast, smart and easy. It provides personalized, intuitive and relevant clinical workflows via the desktop, tablet and smart phone" Cerner understands the importance of health system and community interoperability, which is why Millennium+ integrates and unifies information gathered within the organization and across the community into a provider's workflow. Millennium+ is designed to speed up workflows, reduce clicks and ensure Cerner solutions provide each user the information they need at the right point in the workflow in context of the person, condition and venue.
• 100K invested in CERN would have grown to over 550K in 10 years; keep in mind this stock does not pay dividends so that is a very good rate of return.

We would wait for the markets to pull back before opening up new positions in CERN. The markets are extremely overbought in the short term time frames, and CERN is trading close to its 52-week highs; it would be wise to wait for both to let out some steam before jumping in.

EPS, EPS surprise and 5 year history charts were sourced from zacks.com.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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