Cerner 4Q and Full year numbers

Health care is too important to stay the same. That is the payoff line for the company Cerner, founded in 1979 by three Arthur Andersen employees. The company is the largest standalone healthcare IT business in the world, essentially they operate where medical care and information technology collide. Two of those founders are still there, the CEO (and Chairman), Neal Patterson and Vice Chairman Clifford Illig.

Recently Neal Patterson has started treatment for Cancer, which has been described as both treatable and curable. As you would expect, the founder and CEO is quoted as saying: "It's not often I'm forced to slow down, but the silver lining will be having some extra 'think' time to reflect on all the extraordinary opportunities we have in health IT. After years of studying health care systems around the world, this unique opportunity already has my gears turning." I guess that is the nature of an entrepreneur, always thinking and always looking for new angles. He plans to stay active in the business, fewer meetings and less travel being the order of the day. So whilst Patterson is in therapy, he still remains operational.

He went through therapies with his wife, who herself had cancer towards the end of 2014, and knew that there is plenty of work for his business to do, he remembers lugging vast amounts of physical records when visiting specialists. The story is personal to him and the millions of other people who want specialists and health professionals all around the world to make sure that their records are readily available.

I want to copy and paste an important paragraph from the last published annual report, that underscores why we want to continue to own this business: "Size matters because health care is the largest sector in almost all worldwide economies. It has tremendous complexities, breadth and reach. Our size alone is of no value without vision, agility and real skills." Deteriorating individual health does not know creed, race, colour or economic background. Obviously the more resources you have, the greater the ability to deal with healthcare problems.

The results for the full year were by most metrics very good, the only issues were that bookings were weak. And this was on top of the fact that revenue backlogs increased to 14.2 billion Dollars from 10.6 billion Dollars the year prior, there certainly is a lot of demand for their products! Making healthcare electronic is a top priority. It is becoming an increasingly competitive space, loyalty for new business is often at pricing point. The company obviously has long standing relationships.

So why did the share price swoon by as much as 13-14 percent pre market? The stock ended down 4.8 percent down by the end of the session Wednesday, recovering a lot off the worst, ending the session at 52.79 Dollars. It was trading at a 52 week low, at the beginning of the session, 49.89 Dollars at one stage. The 52 week high is 75.72 Dollars. The share price is down 30 percent from the highs from last April. Why? I suspect that when your stock trades on a very high multiple, you have to deliver earnings in the high twenties, percentage wise. It is not that they haven't grown earnings aggressively, the market has cooled towards healthcare and technology, their peer grouping, Athena Health particularly as an example, is equally off as much.

Current year estimates suggest a 20 percent rise in HEPS to just shy of 2.40 Dollars, which is around a 23 multiple, the estimates for next year of 2.70 Dollars of earnings, means that the stock trades on a 20 multiple two years out. I think that for the growth prospects, this represents a really good opportunity to buy a quality business that sits squarely inside of two industries that have serious growth potential, healthcare and information technology. And they represent the glue in-between. Buy.