Why Is Cerner (CERN) Up 3.9% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Cerner Corporation (NASDAQ:CERN) . Shares have added about 3.9% 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 the most recent earnings report in order to get a better handle on the important drivers.

Recent Earnings

Cerner reported adjusted first-quarter 2018 earnings of 58 cents per share, down 1.7% from the year-ago quarter. The figure was in line with the Zacks Consensus Estimate.

Revenues of $1.29 billion rose 2.6% year over year but missed the Zacks Consensus Estimate of $1.34 billion.

Bookings Detail

The year-over-year upside in revenues can be primarily attributed to an increase in bookings in the first quarter. Bookings were $1.40 billion, up 12% on a year-over-year basis. The company registered strong bookings on business office services. However, subscription bookings were lower than expected.

Segment Details

Instead of reporting in three revenue categories — system sales, support maintenance and services — Cerner reported in six segments in the first quarter.

Licensed software in the first quarter fell 5.3% to $134.8 million, on a year-over-year basis. Lower-than expected subscription bookings marred growth in the segment.

Subscriptions accounted for revenues worth $76.6 million, down 32.4% on a year-over-year basis.

Professional services increased 11.3% year over year to $441.3 million. Per management, strong performance in the segment is likely to enhance revenue cycle position.

Managed services segment revenues were $268.3 million, up 3.3% year over year.

Support and maintenance revenues were $284.6 million, up 8.6% year over year.

Reimbursed Travel sales amounted to $23.9 million, up 6% from the year-ago quarter.

Margins

Gross margin in the first quarter was 82.1%, almost flat year over year. Operating margin for the reported quarter was 15.1%, which contracted 427 basis points (bps) on a year-over-year basis.

The downside was caused by surge in operating expenses, which rose 6% year over year. The growth was driven by personnel expense related to revenue-generating associates and non-cash items.

Financial Position

Cerner exited the first quarter with free cash flow of $255.7 million. Operating cash flow totaled $409 million.

Long-term debt, including capital lease obligations, was $527 million, down slightly on a sequential basis.

View Downbeat

Cerner expects second-quarter 2018 revenues between $1.31 billion and $1.36 billion.

The second quarter of 2018 adjusted earnings per share is projected in the range of 59-61 cents.

For 2018, revenues are projected in the range of $5.33-$5.45 billion, down from a range of $5.45 billion to $5.65 billion.

Full-year 2018 adjusted earnings per share is estimated in the range of $2.45-$2.55. Further, the company expects second-quarter 2018 new business bookings in the range of $1.35-$1.55 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been 11 revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 8.3% due to these changes.

Cerner Corporation Price and Consensus

VGM Scores

At this time, CERN has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. Charting a somewhat similar path, 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 aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise CERN has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.