Cerner Corp Valuation – February 2019 $CERN

Company Profile (excerpt from Reuters): Cerner Corporation (Cerner), incorporated on October 6, 1986, is a supplier of healthcare information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations of all sizes. The Company’s segments include Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Aruba, Australia, Austria, the Bahamas, Belgium, Bermuda, Brazil, Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland and the United Arab Emirates. As of December 31, 2016, the Company had systems in over 25,000 facilities across the world, including hospitals, physician practices, laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology clinics, surgery centers, extended care facilities, retail pharmacies, and employer sites.

Downloadable PDF version of this valuation:

ModernGraham Valuation of CERN – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,332,883,868 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.41 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 160.26% Pass
6. Moderate PEmg Ratio PEmg < 20 25.38 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.79 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.41 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.32 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.23
MG Growth Estimate 9.77%
MG Value $62.47
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $32.30
MG Value based on 0% Growth $18.93
Market Implied Growth Rate 8.44%
Current Price $56.52
% of Intrinsic Value 90.48%

Cerner Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.35 in 2015 to an estimated $2.23 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 8.44% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cerner Corporation revealed the company was trading above its Graham Number of $29.47. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 25.38, which was below the industry average of 51.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.63.

Cerner Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.63
Graham Number $29.47
PEmg 25.38
Current Ratio 2.41
PB Ratio 3.79
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,318,804,000
Total Current Liabilities $962,690,000
Long-Term Debt $438,802,000
Total Assets $6,708,636,000
Intangible Assets $2,147,361,000
Total Liabilities $1,780,247,000
Shares Outstanding (Diluted Average) 330,809,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.58
Dec2018 $1.89
Dec2017 $2.57
Dec2016 $1.85
Dec2015 $1.54
Dec2014 $1.50
Dec2013 $1.13
Dec2012 $1.13
Dec2011 $0.88
Dec2010 $0.70
Dec2009 $0.58
Dec2008 $0.57
Dec2007 $0.38
Dec2006 $0.34
Dec2005 $0.14
Dec2004 $0.11
Dec2003 $0.15
Dec2002 $0.08
Dec2001 -$0.15
Dec2000 $0.37
Dec1999 -$0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.23
Dec2018 $1.99
Dec2017 $1.93
Dec2016 $1.55
Dec2015 $1.35
Dec2014 $1.19
Dec2013 $0.99
Dec2012 $0.87
Dec2011 $0.70
Dec2010 $0.57
Dec2009 $0.47
Dec2008 $0.38
Dec2007 $0.27
Dec2006 $0.20
Dec2005 $0.11
Dec2004 $0.10
Dec2003 $0.09

Recommended Reading:

Other ModernGraham posts about the company

Cerner Corporation Valuation – April 2018 $CERN
5 Companies for Enterprising Investors Near 52 Week Lows – January 2017
5 Companies for Enterprising Investors Near 52 Week Lows – December 2016
14 Best Undervalued Stocks of the Week – 8/6/16
Cerner Corporation Valuation – August 2016 $CERN

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cerner Corporation Valuation – April 2018 $CERN

Company Profile (excerpt from Reuters): Cerner Corporation (Cerner), incorporated on October 6, 1986, is a supplier of healthcare information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations of all sizes. The Company’s segments include Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Aruba, Australia, Austria, the Bahamas, Belgium, Bermuda, Brazil, Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland and the United Arab Emirates. As of December 31, 2016, the Company had systems in over 25,000 facilities across the world, including hospitals, physician practices, laboratories, ambulatory centers, behavioral health centers, cardiac facilities, radiology clinics, surgery centers, extended care facilities, retail pharmacies, and employer sites.

CERN Chart

CERN data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CERN – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,765,139,396 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.01 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 224.66% Pass
6. Moderate PEmg Ratio PEmg < 20 25.44 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.99 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.01 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.22
MG Growth Estimate 12.93%
MG Value $76.17
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $32.15
MG Value based on 0% Growth $18.85
Market Implied Growth Rate 8.47%
Current Price $56.42
% of Intrinsic Value 74.07%

Cerner Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.19 in 2014 to an estimated $2.22 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.47% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Cerner Corporation revealed the company was trading above its Graham Number of $28.85. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 25.44, which was below the industry average of 44.81, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.06.

Cerner Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.06
Graham Number $28.85
PEmg 25.44
Current Ratio 3.01
PB Ratio 3.99
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $2,380,227,000
Total Current Liabilities $789,595,000
Long-Term Debt $0
Total Assets $6,469,311,000
Intangible Assets $2,154,917,000
Total Liabilities $1,683,963,000
Shares Outstanding (Diluted Average) 338,158,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.57
Dec2017 $2.57
Dec2016 $1.85
Dec2015 $1.54
Dec2014 $1.50
Dec2013 $1.13
Dec2012 $1.13
Dec2011 $0.88
Dec2010 $0.70
Dec2009 $0.58
Dec2008 $0.57
Dec2007 $0.38
Dec2006 $0.34
Dec2005 $0.28
Dec2004 $0.22
Dec2003 $0.15
Dec2002 $0.16
Dec2001 -$0.15
Dec2000 $0.37
Dec1999 -$0.01
Dec1998 $0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.22
Dec2017 $1.93
Dec2016 $1.55
Dec2015 $1.35
Dec2014 $1.19
Dec2013 $0.99
Dec2012 $0.87
Dec2011 $0.70
Dec2010 $0.57
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.31
Dec2006 $0.26
Dec2005 $0.19
Dec2004 $0.15
Dec2003 $0.11
Dec2002 $0.09

Recommended Reading:

Other ModernGraham posts about the company

Cerner Corporation Valuation – August 2016 $CERN
26 Best Stocks For Value Investors This Week – 2/6/16
Cerner Corporation Valuation – February 2016 Update $CERN
Cerner Corporation Analysis – September 2015 Update $CERN
Cerner Corporation Analysis – June 2015 Update $CERN

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Zimmer Biomet Holdings Inc Valuation – March 2018 $ZBH
Henry Schein Inc Valuation – March 2018 $HSIC
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cerner Corporation Valuation – August 2016 $CERN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cerner Corporation (CERN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cerner Corporation is a supplier of healthcare information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations. Its segments include Domestic and Global. The Domestic segment includes the business activity in the United States. The Global segment includes the business activity in Aruba, Australia, Austria, Belgium, Brazil, Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Luxembourg, Malaysia, Mexico, Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland and the United Arab Emirates. It offers software, hardware, professional and managed services. Its solutions are offered on the unified Cerner Millennium architecture and on the HealtheIntent cloud-based platform. Its solutions include Cerner ITWorks, Cerner RevWorks, PowerWorks and CommunityWorks, among others.

[level-free]
CERN Chart

CERN data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CERN – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,887,099,613 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.23 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 251.25% Pass
6. Moderate PEmg Ratio PEmg < 20 36.23 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.47 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.23 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CERN value chart August 2016

EPSmg $1.71
MG Growth Estimate 14.65%
MG Value $64.64
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $24.80
MG Value based on 0% Growth $14.54
Market Implied Growth Rate 13.86%
Current Price $61.95
% of Intrinsic Value 95.84%

Cerner Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.87 in 2012 to an estimated $1.71 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 13.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cerner Corporation revealed the company was trading above its Graham Number of $24.52. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 36.23, which was below the industry average of 40.07, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.15.

Cerner Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

CERN charts August 2016

Net Current Asset Value (NCAV) $0.15
Graham Number $24.52
PEmg 36.23
Current Ratio 2.23
PB Ratio 5.47
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,728,638,000
Total Current Liabilities $775,932,000
Long-Term Debt $0
Total Assets $5,594,492,000
Intangible Assets $2,095,656,000
Total Liabilities $1,678,165,000
Shares Outstanding (Diluted Average) 345,900,000

Earnings Per Share History

Next Fiscal Year Estimate $2.32
Dec2015 $1.54
Dec2014 $1.50
Dec2013 $1.13
Dec2012 $1.13
Dec2011 $0.88
Dec2010 $0.70
Dec2009 $0.58
Dec2008 $0.57
Dec2007 $0.38
Dec2006 $0.34
Dec2005 $0.28
Dec2004 $0.22
Dec2003 $0.15
Dec2002 $0.16
Dec2001 -$0.15
Dec2000 $0.37
Dec1999 -$0.01
Dec1998 $0.08
Dec1997 $0.06
Dec1996 $0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.71
Dec2015 $1.35
Dec2014 $1.19
Dec2013 $0.99
Dec2012 $0.87
Dec2011 $0.70
Dec2010 $0.57
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.31
Dec2006 $0.26
Dec2005 $0.19
Dec2004 $0.15
Dec2003 $0.11
Dec2002 $0.09
Dec2001 $0.06
Dec2000 $0.15

Recommended Reading:

Other ModernGraham posts about the company

26 Best Stocks For Value Investors This Week – 2/6/16
Cerner Corporation Valuation – February 2016 Update $CERN
Cerner Corporation Analysis – September 2015 Update $CERN
Cerner Corporation Valuation – February 2016 Update $CERN
Cerner Corporation Analysis – September 2015 Update $CERN

Other ModernGraham posts about related companies

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Intuitive Surgical Inc Valuation – July 2016 $ISRG
Cardinal Health Inc Valuation – July 2016 $CAH
PerkinElmer Inc Valuation – July 2016 $PKI
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St. Jude Medical Inc Valuation – June 2016 $STJ

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cerner Corporation Valuation – February 2016 Update $CERN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cerner Corporation (CERN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cerner Corporation (Cerner) is a supplier of health care information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations. The Company offers software, hardware, professional services and managed services. The Company operates in two segments: Domestic and Global. The Domestic segment includes the business activity in the United States. The Global segment includes the business activity in Aruba, Australia, Austria, Brazil, Canada, Cayman Islands, Chile, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Israel, Malaysia, Mexico, Netherlands, Qatar, Saudi Arabia, Singapore, Spain, Switzerland and the United Arab Emirates. Cerner solutions are offered on the unified Cerner Millennium architecture and on the HealtheIntent cloud-based platform. Its solutions include HealtheRegistries, Cerner ITWorks, Cerner RevWorks, PowerWorks and CommunityWorks, among others.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CERN – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,745,394,531 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.15 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 230.48% Pass
6. Moderate PEmg Ratio PEmg < 20 41.03 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.15 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.15 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.59 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CERN value Chart February 2016

EPSmg $1.37
MG Growth Estimate 14.61%
MG Value $51.74
Opinion Fairly Valued
MG Value based on 3% Growth $19.89
MG Value based on 0% Growth $11.66
Market Implied Growth Rate 16.26%
Current Price $56.29
% of Intrinsic Value 108.79%

Cerner Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends as well as the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.70 in 2011 to an estimated $1.37 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 16.26% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cerner Corporation (CERN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CERN Charts February 2016

Net Current Asset Value (NCAV) $0.34
Graham Number $20.16
PEmg 41.03
Current Ratio 2.15
PB Ratio 5.15
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $1,803,762,000
Total Current Liabilities $839,335,000
Long-Term Debt $572,828,000
Total Assets $5,522,925,000
Intangible Assets $2,037,716,000
Total Liabilities $1,685,600,000
Shares Outstanding (Diluted Average) 351,364,000

Earnings Per Share History

Next Fiscal Year Estimate $1.61
Dec2014 $1.50
Dec2013 $1.13
Dec2012 $1.13
Dec2011 $0.88
Dec2010 $0.70
Dec2009 $0.58
Dec2008 $0.57
Dec2007 $0.38
Dec2006 $0.34
Dec2005 $0.28
Dec2004 $0.22
Dec2003 $0.15
Dec2002 $0.16
Dec2001 -$0.15
Dec2000 $0.37
Dec1999 -$0.01
Dec1998 $0.08
Dec1997 $0.06
Dec1996 $0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.37
Dec2014 $1.19
Dec2013 $0.99
Dec2012 $0.87
Dec2011 $0.70
Dec2010 $0.57
Dec2009 $0.48
Dec2008 $0.41
Dec2007 $0.31
Dec2006 $0.26
Dec2005 $0.19
Dec2004 $0.15
Dec2003 $0.11
Dec2002 $0.09
Dec2001 $0.06
Dec2000 $0.15
Dec1999 $0.03

Recommended Reading:

Other ModernGraham posts about the company

Cerner Corporation Analysis – September 2015 Update $CERN
Cerner Corporation Analysis – June 2015 Update $CERN
23 Companies in the Spotlight This Week – 3/9/15
Cerner Corporation Quarterly Valuation – March 2015 $CERN
22 Companies in the Spotlight This Week – 11/29/14

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DaVita HealthCare Partners Inc Valuation – November 2015 Update $DVA
Align Technology Inc. Valuation – November 2015 Update $ALGN
Varian Medical Systems Inc. Valuation – November 2015 Update $VAR
Psychemedics Corporation Valuation – November 2015 Update $PMD

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

 

Cerner Corporation Analysis – September 2015 Update $CERN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cerner Corporation (CERN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cerner Corporation (Cerner) is a supplier of health care information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations. The Company offers software, hardware, professional services and managed services. The Company operates in two segments: Domestic and Global. The Domestic segment includes the business activity in the United States. The Global segment includes the business activity in Aruba, Australia, Austria, Brazil, Canada, Cayman Islands, Chile, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Israel, Malaysia, Mexico, Netherlands, Qatar, Saudi Arabia, Singapore, Spain, Switzerland and the United Arab Emirates. Cerner solutions are offered on the unified Cerner Millennium architecture and on the HealtheIntent cloud-based platform. Its solutions include HealtheRegistries, Cerner ITWorks, Cerner RevWorks, PowerWorks and CommunityWorks, among others.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CERN – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CERN value Chart September 2015

EPSmg $1.43
MG Growth Estimate 15.00%
MG Value $54.88
Opinion Overvalued
MG Value based on 3% Growth $20.67
MG Value based on 0% Growth $12.12
Market Implied Growth Rate 17.50%
Current Price $62.00
% of Intrinsic Value 112.98%

Cerner Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends as well as the high PEmg and PB ratios.  The Enterprising Investor is only concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.70 in 2011 to an estimated $1.43 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 17.5% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cerner Corporation (CERN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CERN Charts September 2015

Net Current Asset Value (NCAV) $0.75
Graham Number $21.15
PEmg 43.49
Current Ratio 2.42
PB Ratio 5.65
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,883,707,000
Total Current Liabilities $777,851,000
Long-Term Debt $567,312,000
Total Assets $5,484,833,000
Intangible Assets $1,978,467,000
Total Liabilities $1,620,840,000
Shares Outstanding (Diluted Average) 352,450,000

Earnings Per Share History

Next Fiscal Year Estimate $1.77
Dec14 $1.50
Dec13 $1.13
Dec12 $1.13
Dec11 $0.88
Dec10 $0.70
Dec09 $0.58
Dec08 $0.57
Dec07 $0.38
Dec06 $0.34
Dec05 $0.28
Dec04 $0.22
Dec03 $0.15
Dec02 $0.16
Dec01 -$0.15
Dec00 $0.37
Dec99 -$0.01
Dec98 $0.08
Dec97 $0.06
Dec96 $0.03
Dec95 $0.09

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.43
Dec14 $1.19
Dec13 $0.99
Dec12 $0.87
Dec11 $0.70
Dec10 $0.57
Dec09 $0.48
Dec08 $0.41
Dec07 $0.31
Dec06 $0.26
Dec05 $0.19
Dec04 $0.15
Dec03 $0.11
Dec02 $0.09
Dec01 $0.06
Dec00 $0.15
Dec99 $0.04

Recommended Reading:

Other ModernGraham posts about the company

Cerner Corporation Analysis – June 2015 Update $CERN
23 Companies in the Spotlight This Week – 3/9/15
Cerner Corporation Quarterly Valuation – March 2015 $CERN
22 Companies in the Spotlight This Week – 11/29/14
Cerner Corporation Quarterly Valuation – November 2014 $CERN

Other ModernGraham posts about related companies

Intuitive Surgical Inc. Analysis – September 2015 Update $ISRG
Dentsply International Inc. Analysis – August 2015 Update $XRAY
Becton Dickinson & Company Analysis – August 2015 Update $BDX
Align Technology Analysis – Initial Coverage $ALGN
Varian Medical Systems Inc Analysis – August 2015 Update $VAR
Psychemedics Corporation Analysis – August 2015 Update $PMD
C.R. Bard Inc. Analysis – August 2015 Update $BCR
Thermo Fisher Scientific Inc. Analysis – 2015 Update $TMO
Express Scripts Inc. Analysis – 2015 Update $ESRX
HCA Holdings Inc. Analysis – Initial Coverage $HCA

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cerner Corporation Analysis – June 2015 Update $CERN

2011.Cerner.logoA lot of investors and analysts considering Cerner Corporation (CERN) may be focused primarily on qualitative speculation about the company’s prospects. For example, Seeking Alpha contributor Peter Xenopoulos recently analyzed the company with a strong focus on traits such as its economic moat and the trend in hospital merges. In addition, Lester Goh of Leveraged Returns wrote that the company’s qualitative factors justify paying a premium for the shares. Such a qualitative analysis is important before making an investment decision, but it is critical when analyzing Cerner to consider the company’s intrinsic value in relation to its price.

In fact, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether a company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here’s a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

CERN Chart

CERN data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – Earnings per share has increased by at least 1/3 over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – FAIL
  7. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – FAIL
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $67.06
MG Value $58.73
MG Opinion Overvalued
Value Based on 3% Growth $22.12
Value Based on 0% Growth $12.97
Market Implied Growth Rate 17.73%
Net Current Asset Value (NCAV) $0.76
PEmg 43.96
Current Ratio 2.41
PB Ratio 6.36

Balance Sheet – March 2015

Current Assets $1,911,000,000
Current Liabilities $792,000,000
Total Debt $564,000,000
Total Assets $5,353,000,000
Intangible Assets $1,965,000,000
Total Liabilities $1,642,000,000
Outstanding Shares 351,700,000

Earnings Per Share

2015 (estimate) $2.07
2014 $1.50
2013 $1.13
2012 $1.13
2011 $0.88
2010 $0.70
2009 $0.58
2008 $0.57
2007 $0.38
2006 $0.34
2005 $0.28

Earnings Per Share – ModernGraham

2015 (estimate) $1.53
2014 $1.19
2013 $0.99
2012 $0.87
2011 $0.70
2010 $0.58

Dividend History

Cerner does not pay a dividend.

Conclusion

Cerner passes the initial requirements of the Enterprising Investor but not of the more conservative Defensive Investor. The Defensive Investor is concerned with the lack of dividends and the high PEmg and PB ratios. The Enterprising Investor is only concerned by the lack of dividends. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has seen its EPSmg (normalized earnings) rise from $0.70 in 2011 to an estimated $1.53 for 2015. This level of earnings growth does not support the market’s implied estimate for 17.73% annual growth over the next 7-10 years.

The recent earnings growth has averaged around 23.75% per year, so the market is implying there will be a drop in earnings growth. However, the ModernGraham valuation model uses a much more conservative growth estimate and returns an estimate of intrinsic value falling below the market’s price, indicating that Cerner is overvalued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Cerner Corporation Quarterly Valuation – March 2015 $CERN

2011.Cerner.logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – February 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Cerner Corporation (CERN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cerner Corporation (Cerner) is a healthcare information technology company. The Company offers a range of software, professional services, medical device integration, remote hosting and employer health and wellness services. It designs, develops, markets, installs, hosts and supports healthcare information technology, health care devices, hardware and content solutions for healthcare organizations and consumers. The Company also provides range of value-added services, including implementation and training, remote hosting, operational management services, revenue cycle services, support and maintenance, healthcare data analysis, clinical process optimization, transaction processing, employer health centers, employee wellness programs and third-party administrator services for employer-based health plans. Cerner’s systems are used by individual consumers, single-doctor practices, hospitals, employers and entire countries.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $71.92
MG Value $45.87
MG Opinion Overvalued
Value Based on 3% Growth $17.27
Value Based on 0% Growth $10.13
Market Implied Growth Rate 25.93%
Net Current Asset Value (NCAV) $3.95
PEmg 60.37
Current Ratio 3.71
PB Ratio 7.06

Balance Sheet – December 2014

Current Assets $2,349,000,000
Current Liabilities $634,000,000
Total Debt $63,000,000
Total Assets $4,531,000,000
Intangible Assets $867,000,000
Total Liabilities $965,000,000
Outstanding Shares 350,100,000

Earnings Per Share

2014 $1.50
2013 $1.13
2012 $1.13
2011 $0.88
2010 $0.70
2009 $0.58
2008 $0.57
2007 $0.38
2006 $0.34
2005 $0.28
2004 $0.22

Earnings Per Share – ModernGraham

2014 $1.19
2013 $0.99
2012 $0.87
2011 $0.70
2010 $0.58
2009 $0.49

Dividend History
Cerner Corporation does not pay a dividend.

Conclusion:

Cerner Corporation is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividends, along with the high PEmg and PB ratios, while the Enterprising Investor is only concerned with the lack of dividends.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.58 in 2010 to $1.19 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 25.93% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out previous ModernGraham valuations of Cerner Corporation (CERN) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cerner Corporation (CERN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Cerner Corporation (CERN) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cerner Corporation Quarterly Valuation – November 2014 $CERN

2011.Cerner.logo

After looking over the company’s fundamentals, Cerner qualifies for the Enterprising Investor, as the investor type’s only concern is the lack of dividend payments. As for the Defensive Investor, there are numerous concerns including the lack of dividends, along with the high PEmg and PB ratios. As a result, only Enterprising Investors should feel comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

Estimating the intrinsic value requires examining the company’s earnings history. Cerner has grown its EPSmg (normalized earnings) from $0.58 in 2010 to only an estimated $1.24 for 2014. This demonstrated level of earnings growth does not support the market’s implied estimate of 21.41% earnings growth. In recent years, the company has seen an average annual growth in earnings of around 23.15%. However, such a high rate is not sustainable for a long period of time, and value investors who are conservative by nature will be very cautious regarding an earnings growth estimate. The ModernGraham model limits the growth to only 15% to create an additional safety margin. As a result, the ModernGraham valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.

Be sure to check out previous ModernGraham valuations of Cerner Corporation for better perspective!

Read the full valuation on Seeking Alpha!

CERN Chart

CERN data by YCharts

Disclaimer:  The author did not hold a position in Cerner Corporation (CERN) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cerner Corporation Quarterly Valuation – August 2014 $CERN

2011.Cerner.logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Cerner Corporation (CERN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cerner Corporation is a supplier of healthcare information technology solutions, services, devices and hardware. Cerner solutions optimize processes for healthcare organizations. These solutions are licensed by 9,300 facilities globally, including more than 2,650 hospitals; 3,750 physician practices 40,000 physicians; 500 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 800 home health facilities; 40 employer sites and 1,600 retail pharmacies. It operates in two segments: domestic, which includes revenue contributions and expenditures associated with business activity in the United States, and global, which includes revenue contributions and expenditures linked to business activity in Argentina, Aruba, Canada, Cayman Islands, Chile, Puerto Rico, Saudi Arabia, Singapore, Spain and the United Arab Emirates. Effective March 18, 2013, it acquired Labotix Automation Inc.
CERN Chart

CERN data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $56.99
MG Value $45.84
MG Opinion Overvalued
Value Based on 3% Growth $17.26
Value Based on 0% Growth $10.12
Market Implied Growth Rate 19.68%
Net Current Asset Value (NCAV) $2.63
PEmg 47.86
Current Ratio 2.83
PB Ratio 5.96

Balance Sheet – 6/28/2014

Current Assets $1,903,300,000
Current Liabilities $672,500,000
Total Debt $96,100,000
Total Assets $4,265,300,000
Intangible Assets $846,000,000
Total Liabilities $1,005,500,000
Outstanding Shares 341,010,000

Earnings Per Share

2014 (estimate) $1.50
2013 $1.13
2012 $1.13
2011 $0.88
2010 $0.69
2009 $0.58
2008 $0.57
2007 $0.38
2006 $0.34
2005 $0.28
2004 $0.22

Earnings Per Share – ModernGraham

2014 (estimate) $1.19
2013 $0.98
2012 $0.86
2011 $0.69
2010 $0.57
2009 $0.49

Dividend History

Cerner Corporation does not pay a dividend.

Conclusion:

Cerner Corporation is not suitable for the Defensive Investor but does qualify for the Enterprising Investor.  The Defensive Investor has concerns with the lack of dividend payments and the high PEmg and PB ratios, while the Enterprising Investor’s only initial concern is the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.57 in 2010 to an estimated $1.19 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 19.68% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of Cerner Corporation (CERN) for more perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cerner Corporation (CERN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Cerner Corporation (CERN) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cerner Corporation May 2014 Quarterly Valuation $CERN

2011.Cerner.logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Lowest PEmg Comapnies for Defensive Investors.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Cerner Corporation (CERN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cerner Corporation is a supplier of healthcare information technology solutions, services, devices and hardware. Cerner solutions optimize processes for healthcare organizations. These solutions are licensed by 9,300 facilities globally, including more than 2,650 hospitals; 3,750 physician practices 40,000 physicians; 500 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics and surgery centers; 800 home health facilities; 40 employer sites and 1,600 retail pharmacies. It operates in two segments: domestic, which includes revenue contributions and expenditures associated with business activity in the United States, and global, which includes revenue contributions and expenditures linked to business activity in Argentina, Aruba, Canada, Cayman Islands, Chile, Puerto Rico, Saudi Arabia, Singapore, Spain and the United Arab Emirates. Effective March 18, 2013, it acquired Labotix Automation Inc.

CERN Chart

CERN data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $53.12
MG Value $45.58
MG Opinion Overvalued
Value Based on 3% Growth $17.17
Value Based on 0% Growth $10.06
Market Implied Growth Rate 18.18%
Net Current Asset Value (NCAV) $2.83
PEmg 44.86
Current Ratio 3.13
PB Ratio 5.62

Balance Sheet – 3/31/2014

Current Assets $1,915,200,000
Current Liabilities $611,700,000
Total Debt $104,800,000
Total Assets $4,191,300,000
Intangible Assets $812,500,000
Total Liabilities $945,000,000
Outstanding Shares 343,340,000

Earnings Per Share

2014 (estimate) $1.48
2013 $1.13
2012 $1.13
2011 $0.88
2010 $0.69
2009 $0.58
2008 $0.57
2007 $0.38
2006 $0.34
2005 $0.28
2004 $0.22

Earnings Per Share – ModernGraham

2014 (estimate) $1.18
2013 $0.98
2012 $0.86
2011 $0.69
2010 $0.57
2009 $0.49

 

Conclusion:

Cerner Corporation is suitable for the Enterprising Investor but not the Defensive Investor.  The company fails the Defensive Investor’s requirements regarding the dividend record and the PEmg and PB ratio levels.  However, the Enterprising Investor’s only concern is with the lack of dividend payments.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors.  From a valuation standpoint, the company appears overvalued after growing its EPSmg (normalized earnings) from $0.57 in 2010 to only an estimated $1.18 for 2014.  This low level of demonstrated growth does not support the market’s implied estimate of 18.18% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cerner Corporation (CERN)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Cerner Corporation (CERN) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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