Can Cerner (CERN) Spring A Surprise This Earnings Season?

Cerner Corporation (NASDAQ:CERN) is expected to report second-quarter 2016 results on Aug 2. Last quarter, the company reported earnings of 58 cents per share, which was in line with the Zacks Consensus Estimate.

Notably, the company’s results compared favorably with the Zacks Consensus Estimate in the last four quarters, with an average beat of 1.87%.

Let's see how things are shaping up for this quarter.

Factors at Play

We believe that Cerner’s strong product portfolio will help it boost its customer base. The frequent contract wins reflect growing traction. Moreover, the company has strong growth opportunities in the revenue cycle management (RCM) and ambulatory market.

For the second quarter of 2016, Cerner forecasts revenues between $1.175 billion and $1.25 billion. The mid-point of the guided range reflects 8% year-over-year growth.

Cerner also projects new business bookings between $1.35 billion and $1.48 billion. At mid-point, this reflects 10% growth on a year-over-year basis.

Adjusted earnings (before share-based compensation expense and acquisition-related adjustments) are now expected in the range of 56 cents to 58 cents. At mid-point, this reflects 10% growth on a year-over-year basis.

However, the HCIT market is highly competitive which exerts considerable pressure on both pricing and margins. Moreover, a growing proportion of low-margin services and technology resale may affect margins. Further, stringent hospital budgets continue to exert pressure on pricing, which is an added concern.

Earnings Whispers

Our proven model does not conclusively show that Cerner is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Cerner has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 53 cents.

Zacks Rank: Cerner has a Zacks Rank #3 which increases the predictive power of ESP; but when combined with a 0.00% ESP, it makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few stocks worth considering that, per our model, have the right combination of elements to post an earnings beat this quarter:

Nektar Therapeutics (NASDAQ:NKTR) with an Earnings ESP of +50.00% and Zacks Rank #1.

GlycoMimetics Inc. (NASDAQ:GLYC) with an Earnings ESP of +13.64% and Zacks Rank #1.

ANI Pharmaceuticals Inc. (NASDAQ:ANIP) with an Earnings ESP of +2.63% and a Zacks Rank #1.