Why Is Cerner (CERN) Up 2.5% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Cerner Corporation (NASDAQ:CERN) . Shares have added about 2.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CERN due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Cerner reported adjusted fourth-quarter earnings of 58 cents per share, down from 61 cents in the year-ago quarter. The figure also lagged the Zacks Consensus Estimate by 3 cents.

Revenues in the reported quarter is $1.314 billion, up 4% on year-over-year basis, marginally missing the Zacks Consensus Estimate of $1.33 billion.

The upside in revenues can be primarily attributed to an increase in bookings in the fourth quarter. Bookings in the quarter were $2.329 billion, up 62% on a year-over-year basis. Full-year bookings were at a record of $6.325 billion, up 16% compared with the 2016 bookings.

Hence, Cerner is well positioned for a strong first quarter performance based on solid bookings guidance for the same. The company further anticipates first quarter 2018 new business bookings between $1.250 billion and $1.450 billion.

Segment Details

System Sales in the fourth quarter rose 3.2% to $363.5 million, on a year-over-year basis. It was driven primarily by growth in licensed software.

Support, Maintenance and Services accounted for revenues worth $922 million, up 4.7% on year-over-year basis and in line with management’s expectations.

Reimbursement Travel sales is $28 million which is also an increase of 12.2% compared to the year-ago quarter.

Margin & Balance Sheet Details

Gross margin in fourth quarter is 82.6%, flat compared to the prior-year quarter.

Operating margin for the reported quarter is 20.5%, which contracted 280 basis points on year-over-year basis.

The fall is owing to the surge in operating expenses, which increased 9% year over year. The growth is driven by personnel expense related to revenue-generating associates and non-cash items.

Operating cash flow in the fourth quarter is $384.9 million, compared to $338 million from the year ago quarter.

Cerner exited the fourth quarter with cash and cash equivalents of $371 million.

Long-term debt, including capital lease obligations is $527 million, down slightly on a sequential basis, in the quarter under review.

Guidance

Cerner expects first-quarter 2018 revenue between $1.315 billion and $1.365 billion.

Full-year 2018 revenues are expected within $5.450 billion and $5.650 billion.

First-quarter 2018 Adjusted earnings per share between $0.57 and $0.59.
Full-year 2018 adjusted earnings per share between $2.57 and $2.73.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.

Cerner Corporation Price and Consensus

Cerner Corporation Price and Consensus | Cerner Corporation Quote

VGM Scores

Currently, CERN has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregte VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, CERN has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.