CERN Stock Could See a Bump If a Cloud Company Gobbles It Up

I was surprised when no one followed up on my Cerner (NASDAQ:CERN) stock  piece early this month, predicting that the company would soon be bought.

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The signs are all there. They’re searching for a new CEO. There have been lay-offs at headquarters. There may be problems with a key contract.

But so far there have been crickets from the analyst community. No one seems willing to go out on a limb and predict a deal, as this reporter has.

There are reasons for this.

A Closer Look at CERN Stock

Healthcare has long resisted the clutches of mainstream IT. That’s because healthcare is closely regulated, which dramatically increases IT costs.

Specialty firms like Cerner, and competitors like privately-held EPIC Systems, spend the money to become intimately connected with regulations like HIPAA and schmooze hospital administrators.

A decade ago, this looked set to change. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) both appeared at HIMSS, the industry’s annual conference.

They offered software for creating personal health records. Despite billions of dollars in sweet, sweet stimulus cash (as I called it) in the 2009 HITECH Act, the big players backed away.

Now they’re inching back in, as the cloud has proven to be the best platform for managing health records. Microsoft has Microsoft Cloud for Healthcare. Google has a Cloud Healthcare API. IBM (NYSE:IBM) is now focused on the space. So is Oracle (NASDAQ:ORCL).

Cerner Stumbles

Meanwhile Cerner, the second-largest vendor in the space, has been stumbling.

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Revenue peaked in 2019 and should fall again in 2021. This has been accompanied by rising profits, although earnings per share remain below 2017 levels.

CERN stock began paying a dividend in 2019, and raised it late last year. But it’s still just 22 cents/share, a yield of 1.12%. The price to earnings ratio, meanwhile, now stands at 30.

Cerner is overpriced. From the outside, this looks like an ailing company that needs a new strategy. It’s ripe for a takeover, but the layoffs indicate the strategy is simply retrenchment.

Cerner is the largest employer in its headquarters of Kansas City, so local business writers are nervous. Things really haven’t been the same since the death of former CEO Neal Patterson in 2017.

Who Might Buy?

Cerner has a market cap of $23 billion, so there are plenty of potential buyers.

These would start with Oracle and Salesforce.com (NYSE:CRM), both of which are valued at over $200 billion.

IBM could also become involved, with its market cap of $131 billion.

The obvious buyer should be Microsoft, which with a valuation of over $2 trillion could do it with seat cushion money.

Cerner recently partnered with Apple (NASDAQ:AAPL) on a health app, integrating its data with the Apple iPhone and Apple Watch.

Then there’s Google, which could bring both Cerner and its customers into Google Cloud.

Any deal would likely start a feeding frenzy on the whole sector, where troubled vendors like Allscripts Healthcare Solutions (NASDAQ:MDRX) and AthenaHealth, now owned by private capital firm Veritas, could quickly come available if a mainstream vendor entered the market.

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The Bottom Line on CERN Stock

Ironically, it’s government that might set all this off. The Veterans Administration and Department of Defense both chose Cerner to replace their open source medical records systems.

It’s not going well. A key interoperability test is coming and could lead to very unhappy bureaucrats.

Combine a CEO search, unhappy customers and big vendors with solutions who feel locked out of the market and you have a perfect set up for major news.

That’s what my Spidey sense tells me, anyway.

I want to repeat that I could be all wet here. The problems of health IT are massive. It’s just that, at this point, I think it will take massively-scaled cloud vendors to solve them.

On the date of publication, Dana Blankenhorn held LONG positions in MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.


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