FY numbers, huge growth prospects

One of the newest stocks that we started covering in the US is a business called Cerner, and they released numbers for their fourth quarter and full year yesterday. The business was founded in 1979 in Kansas City (Dorothy from the Wizard of Oz was not involved) by current CEO Neal Patterson and two other partners.


All three had left Arthur Anderson to start this business. Patterson is also one of the owners of the Major League Soccer teams in the area, Kansas City Wizards (I knew Dorothy and her red shoes had a space here!), but is also infamous for an email (back in 2001) that went viral where he lambasted latecomers and early leavers at his business. He basically threw down a two week ultimatum to his staff, saying that you have two weeks, tick, tock. Ha-ha, sounds like the kind of guy that the unions would dislike intently, but the US is not South Africa.


First things first, what does this business actually do? Well, they are a technology supplier to the healthcare industry. They help reduce the costs of the healthcare providers in order to make healthcare more affordable to ordinary Americans. Their pay off line is as simple as “Health care is too important to stay the same".


I am not too sure how many of you have been for a procedure or to the hospital for an emergency, but do you recall how many forms that you had to fill in? A whole lot including many duplicates, the same information over and over again. They do say that their health systems are developed for physicians with the wellbeing of their people in mind, harnessing technology rather than technology being the core.


There is an absolutely fabulous description (weirdly by the company themselves) in a release about opening an office in Saudi to help the national healthcare outfit to haul themselves ahead of the pack, which does a better job than me at explaining exactly what they do:

We started with the foundation of digitizing paper processes and now offer the most comprehensive array of information software, professional services, medical device integration, remote hosting and employer health and wellness services. Cerner systems are used by everyone from individual consumers, to single-doctor practices, hospitals, employers and entire countries. Taking what we've learned over more than three decades, Cerner is building on the knowledge that is in the system to support evidence-based clinical decisions, prevent medical errors and empower patients in their care.

A practical example is the implementation of online digital charts that enable all hospital workers to see real time what is happening with their patients. This allows the hospital to be more able to nimble. Think about it, whatever the doctor sees, the nurse sees, the pharmacy sees, radiology sees, the lab sees and the patient sees.

That equals less frustration, more time for everyone. But what this does also do is enable more accurate readings in critical care, some readings after anaesthesia require 30 to 60 second intervals, the more computers feeding information, the easier it is for the folks administering the healthcare to make critical decisions.


And of course in emergency situations, time is everything. But also, in the digitising of the rooms, the patient also scores, because the screens in front of them have the internet and they can feel more at home. Not overwhelmed either with hundreds of screens and devices, but rather three, which include two flat screens per room. There is a fabulous video on YouTube that you must watch: Connecting the Community with Cerner


Everyone wins here, the company can maximise their staff productivity, the patient then pays less and the company that owns the hospital gets more bang for their buck, which allows them to expand and offer more services. In the end, this should be a way of lowering costs, which is critical in the US, as well as other markets around the world. Not dissimilar at all to the Discovery systems of allowing your trusted medical health professionals access to your records (that includes pharmacists), Cerner offers that too.


Cerner offers home care with long term and short term solutions. So you get the picture, the company provides software and hardware (as well as smart solutions that include humans) to the healthcare fraternity that benefit both patients and physicians.


The company turns over just shy of 3 billion Dollars and generates profits of nearly 400 million Dollars, this is not a huge company by any stretch of the imagination. EPS was 1.41 Dollars last year, on a share price of 57, this is by no means a cheap company either, trading on a 40 multiple. Why so expensive? Well, for one the sales and order book (bookings) continue to accelerate and the company talks about expanding margins over the coming years, so there are opportunities for earnings to grow much faster than revenue growth.


Whilst there is the possibility of a fast growing company failing to deliver on their projections and of course analyst expectations, this company finds themselves in a sweet spot, with both the growth in healthcare and technology set to outpace most other established industries. We will continue to recommend the company at current levels after a pleasing set of numbers.