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Cerner Corp to Benefit From Large Allocations to Digital Health

The company has some encouraging catalysts that could drive the share price higher

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Alberto Abaterusso
Jul 06, 2021

Summary

  • Cerner Corporation will benefit from massive government allocations to digital health
  • According to Global Market Insights Inc., the worldwide digital health market will reach $639.4 billion by 2025
  • Cerner Corporation's products are used in the US and internationally, and are in line with the demographic transition in modern society and nations' aim to lower health expenditure
  • Wall Street looks at this stock very favourably
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The stimulus packages that many governments have developed in order to rebuild after Covid-19 are often allocating large amounts of financial resources to the health care sector, with a significant focus on projects of digital health.

Thus, unparalleled funds now available, coupled with a rising number of users of digital health technologies, creates an enticing opportunity for new and old players to create innovative technologies or simply launch a new version of one that is already in use.

According to Global Market Insights Inc., the worldwide digital health market is expected to hit $639.4 billion by 2025, up 504% from $106 billion in 2019, on several growth drivers, which include a big contribution from the demand for electronic health record software (EHRs).

In fact, a growing number of healthcare facilities are adopting software that allows personnel to use real-time data regarding the patient's health, including diagnoses, treatments and various test results, in order to increase quality and efficiency of the health care service.

When looking for investment opportunities in this market, Cerner Corporation (

CERN, Financial) represents a good proposition in my opinon. Shares are up only 1.25% so far this year, lagging the Nasdaq significantly, but they should take off on an expected higher demand for EHR. On Wall Street, as of July, the stock has six strong buys, five buys and nine hold recommendation ratings, indicating that analysts are also optimistic about the stock's prospects.

Based in North Kansas City, Missouri, Cerner Corp provides healthcare technologies that establish connections between people and information systems. These technologies are enabling many medical facilities in the world to be more functional, enhancing the quality of care for patients and entire communities. Additionally, the company offers an integrated system including a wide range of features that are helping the personnel of these facilities to perform tasks in their day-to-day activities.

Cerner Corporation is very well positioned in this market. Its brands are well known internationally as its products are used by healthcare facilities all over the world, not just in the U.S. The company's mission is oriented to the patient’s wish to have a health service that is as digitalized as possible. It also aims to reduce the weight of health expenditure on national budgets. In this sector, digitization is synonymous with promptness and accuracy of medical assistance, causing the least possible discomfort for the patient. A healthcare service with these characteristics produces long-lasting effects on the health of the modern society in North American and European countries, where life expectancy is increasing as the population ages.

Cerner Corporation’s growth will benefit from its robust financial conditions, as the balance sheet holds $1.5 billion in cash on hand and equivalents, covering the debt of $1.9 billion well with the cash flow the business can currently generate. In fact, the debt-to-Ebitda ratio stands at 1.04 versus the industry median of 2.46.

The company also distributes a quarterly cash dividend of 22 cents per common share for a forward dividend yield of 1.11% as of the writing of this article, which bears many possibilities for additional dividend hikes after the past 12-month 11.1% rise, as Cerner Corp projects higher earnings this year. If this happens, it should also give a boost to the share price.

Looking ahead to full-year 2021, the company targets net earnings of approximately $3.20 per share, up 13.7% from $2.84 in 2020, on total revenue of $5.75 billion to $5.95 billion compared to $5.8 billion last year.

Shares are trading at $79.46 apiece in early trading on Tuesday, for a market capitalization of $23.94 billion and a 52-week range of $66.75 to $84.20.

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The stock does not appear expensive as the price-earnings of 30.33 is significantly below the company's median price-earnings ratio for the past 10 years. The average target price on Wall Street is $82.26 per share.

Disclosure: I have no positions in any security mentioned.

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I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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