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



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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