Cerner 1Q numbers - lower guidence

Cerner is a business that focuses on healthcare intelligence. Just the other day, at the beginning of last week, there was a report that suggested Medical errors now third leading cause of death in United States. What? We wrote about their full year results in February, giving some good background to the business - Cerner 4Q and Full year numbers. Back then as we showed you, the stock swooned to a level not seen in a while, the same applies now. Certainly the company is one of the leaders that are looking to reduce medical errors, through their Hospitals & Health Systems business.

Owning a business like this, Cerner, means that you get to participate in the improvement of drug administration to care during and post surgeries. The seven most worrisome emergency surgeries that account for 80 percent of the deaths in the US are closely related to surgery in the abdominal area. I am pretty sure that all parties involved are well aware of the problems and issues associated with these surgeries and are going to work hard to fix them. Department handoffs too are part of the problem, this is no doubt where Cerner can continue to make huge strides in integrating the patients history. Surely information readily available from the consulting doctor through to post op must be available at the click of a button. Knowing everything about the individual, making sure that the correct drugs and care is administered, goes a long way to avoid the medical errors. This is why I think that a business like Cerner still has huge growth potential.

When the company reported their First Quarter 2016 Results, the market was not the least impressed with a 14 percent rise in revenues and an 18 percent rise in earnings. Perhaps it was more likely the guidance given for the quarter and the full year. For the full year the company expects revenues of 4.9 to 5.1 billion Dollars, and earnings per share (before share based compensation expense and acquisition related adjustments) to be 2.35 Dollars at the mid point of the range, a high teens increase in earnings. And that means that the stock trades on a 22.82 times forward. And then further out, less than 20 times earnings on the same growth, implying a 1 PEG ratio. With PEG being price to earnings ratio over the implied growth rate. And by that measure the stock hardly seems expensive for an information technology services company.

The share price performance has been very disappointing. Over the last year the stock is down over one-fifth, nobody likes to see those types of returns. The thesis is still intact, the company is on a firm footing and will continue to find more and more work in the future, as we move towards a greater integration in the internet era. It is a company that I am positive on their long term prospects and whilst there may be very little action in the short to medium term. We maintain our buy recommendation on the stock and are accumulating on weakness.