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What's in the Offing for Cerner's (CERN) Earnings in Q2?

Zacks Equity Research

Cerner Corporation’s CERN second-quarter 2019 results are scheduled to release on Jul 24. In the last reported quarter, the company’s earnings were in-line with the Zacks Consensus Estimate. Further, it has an average four-quarter positive surprise of 0.83%.

Let’s take a look at how things are shaping up prior to this announcement.

Which Way Are Q2 Estimates Treading?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 64 cents, suggesting an improvement of 3.2% from the year-ago quarter. The same for revenues is pegged at $1.44 billion, indicating growth of 5.1% from the year-ago reported figure.

Cerner Corporation Price and EPS Surprise


Cerner Corporation Price and EPS Surprise

Cerner Corporation price-eps-surprise | Cerner Corporation Quote

Bookings to Decline in Q2

Management at Cerner expects bookings revenues between $1.25 billion and $1.45 billion in the second quarter. The mid-point of this range reflects a decline of 24% compared with the company’s much higher-than-normal level of large long-term bookings in the prior-year quarter. This deterioration can be attributed to lower levels of long-term booking. The Zacks Consensus Estimate for second quarter bookings is pegged at $1.51 billion, indicating a decline of 15.2% from the year-ago quarter. Notably, softness in bookings might impact the company’s revenue growth.

However, the company anticipates witnessing bookings growth in 2019, in terms of long-term bookings, on the back of several large, long-term deals in the pipeline.

Factors to Influence Q2

In the second quarter, the company is expected to witness top-line growth, backed by the anticipated increase in revenues across professional and managed services segments, and licensed software business line. Notably, the company expects revenues to range between $1.41 billion and $1.46 billion in the second quarter. The mid-point of this range reflects growth of 5% from the year-ago quarter.

Given the structural and process changes that are being made by the company, Cerner is likely to become more focused and efficient, which in turn might increase predictability and profitability. In fact, adjusted earnings per share are expected in the band of 63-65 cents. The mid-point of this range is 3% higher than the year-ago quarter.

Further, strong contributions from the key areas, namely Population Health, Revenue Cycle and IT Works are likely to drive the company’s overall performance. Moreover, better-than-expected non-U.S. revenues are likely to aid the upcoming quarterly results.

However, the company is likely to have experienced contraction in operating margin in the second quarter primarily owing to headwinds like non-cash software amortization and depreciation, traditional software revenue growth challenges. Further, the company might have experienced a decline in gross margin in the to-be-reported quarter due to somewhat higher mix of third-party services.

Here’s What the Quantitative Model Predicts:

Our proven Zacks model clearly shows that a company with a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cerner has a Zacks Rank #2 and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult.

Please note that 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.

Other Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

AmerisourceBergen ABC has an Earnings ESP of +0.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA XRAY has an Earnings ESP of +6.95% and a Zacks Rank #1.

Acadia Healthcare Company, Inc. ACHC has an Earnings ESP of +4.86% and a Zacks Rank #1.

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