If you're looking to invest in health information services stocks, there aren't many choices that are better than Veeva Systems Inc. (VEEV -0.59%) and Cerner Corporation (CERN). Both of these stocks have enjoyed a tremendous year so far in 2017. Veeva's share price has soared nearly 50% year to date, while Cerner stock is up a solid 35%.
Veeva and Cerner could have even more room to run. But which of these health information services stocks is the better pick for long-term investors? Here's how Veeva and Cerner compare.
The case for Veeva Systems
To understand just how successful Veeva Systems has been, consider that it's the second-fastest software company ever to reach $500 million in sales. Veeva achieved that distinction by addressing the complex needs of the life sciences industry with its cloud solutions. After 10 years in business, the company now claims 517 customers.
Veeva's revenue has more than quadrupled in the last five years. Its earnings have increased from $18.8 million in 2013 to $68.8 million last year, and the company doesn't appear to be slowing down much. Veeva will announce its 2017 first-quarter results later this week and is expected to post a 20% year-over-year earnings increase. Analysts project that the company will grow earnings over the next five years by an average annual rate of 21%.
The company's Commercial Cloud and Vault products should be critical to achieving this level of growth. Commercial Cloud is built around Veeva's vaunted customer relationship management (CRM) system. Vault includes the company's clinical data management and clinical operations solutions.
Veeva's stock valuation isn't for the faint of heart. Its shares currently trade at nearly 63 times expected earnings. That's pricey even factoring in the company's growth prospects.
The case for Cerner
Cerner ranks as the largest stand-alone healthcare information technology provider in the world. The company's systems are in more than 25,000 healthcare facilities worldwide, including hospitals, physicians' offices, laboratories, and more. Eighteen of the 30 largest healthcare systems use Cerner's technology.
Over the past five years, Cerner's revenue has increased nearly 80%. During the same period, its earnings grew 60%, from $397.2 million in 2012 to $636.5 million last year. In the first quarter of 2017, Cerner reported a year-over-year adjusted earnings per share increase of nearly 21%, thanks primarily to higher system sales. Wall Street analysts think the company will grow earnings by an average annual rate of 14% over the next five years.
Cerner expects much of its growth will stem from replacing other electronic health record systems. The company also sees significant opportunities for its population health management solution and managed services businesses, ITWorks and RevWorks. ITWorks targets the needs of hospital information technology departments, while RevWorks includes solutions and services to help healthcare organizations improve their revenue cycle functions.
Cerner's shares trade at 23 times expected earnings. The company's valuation is higher than most of its major competitors, but still is well below the valuation of one key rival -- athenahealth.
If we only looked at valuation, Cerner would definitely be the better pick. Its stock is much less expensive than Veeva's stock using pretty much every valuation metric available.
However, the market tends to prize growth more than anything else. Veeva Systems is likely to grow faster than Cerner will. I think both Cerner and Veeva are solid long-term picks. However, I think over the near term, Veeva is likely to win.