Cerner’s share price has moved sideways for ~ 5 years, throughout this period there has been huge digestion of slowing growth and Cerner has disappointed many times.
2018 was a disaster, both on growth and margins, however we think it gets better from here. 2019 could turn out to be a pivotal moment for Cerner, setting the company up for the next 5 years.
In our opinion the downside case has been derisked as EPS has limited downside, and revenue growth of 6% for the next 3 years looks to be a minimum.
Activist investor (Starboard Value) gave the new CEO and management the kick that was needed and acted as a catalyst for more rapid change. Other investors had been agitating for transformation and a plan was already in place.
Over the next two years the bet is on margin expansion. We believe there is much more room for margin expansion than company guidance.
See room to get to 24-25% operating margins in 2022, vs 18.8% in 2018.
Longer term upside will be driven by successful growth in new products.
We are convinced on value-based-care as the critical tailwind to this growth. Cerner needs to execute.
Potential Upside: $98(+44%)
Sensible Downside: $57(-16%)
Comments