No matter how you slice and dice the numbers, Cerner (NASDAQ:CERN) can claim a killer third quarter. The health care technology and services company reported record revenue of $676.5 million, 24% higher diluted earnings per share year-on-year, and record new bookings.
With these strong results, Cerner raised its 2012 revenue guidance to $2.63 billion to $2.66 billion, up from $2.58 billion to $2.63 billion. The company also narrowed its full-year earnings guidance to a range of $2.34 to $2.36 per share. Cerner previously estimated 2012 earnings per share to be in the $2.32 to $2.36 range.
Several factors were at play with Cerner's killer Q3. Here are three trends that contributed to the great quarter and that should continue to help make the company successful.
1. Reimbursement realignment
The meaningful-use provisions in the HITECH Act helped Cerner and others in the industry generate high sales numbers over the past few years. However, the more important trend to watch going forward is the shift toward outcomes-based reimbursement.
During Cerner's earnings conference call, executive vice president Zane Burke cited the company's platform for data analytics and capabilities for helping providers transition from fee-for-service models as one factor in the company's ability to gain new business during the quarter. Data analytics will become increasingly more important to health care providers in determining ways to improve patient outcomes.
2. Customer consolidation
Another key trend helping Cerner is customer consolidation, which occurs in two different ways.
First, Cerner benefits from larger hospitals acquiring smaller hospitals. Over the past 18 months, existing Cerner customers acquired more than 75 hospitals. Most of these acquisitions represented opportunities for Cerner to displace another system.
The second -- and perhaps more important-- way that providers are consolidating is horizontally. Health care systems are increasingly viewing integration across multiple care settings, including hospitals, physician offices, ambulatory surgery centers, post-acute care, and home health, as a way to improve patient care.
This integrated model should continue to position Cerner for success. Other major rivals -- including AllScripts (NASDAQ:MDRX), GE Healthcare (NYSE:GE), and Siemens (OTC:SIEGY) -- also stand to gain. Cerner and these competitors support the multiple care settings that providers will look to integrate.
3. Global growth
Cerner reported global revenue of $85 million in the third quarter. That amount reflects an 18% increase compared to the same quarter in 2011. It also represents 12.6% of the company's total revenue.
Many of the factors spurring growth in U.S. health care technology are also at work in other parts of the world. Cerner management particularly noted the company's performance in Canada, Australia, and the Middle East.
Trends vs. price
These trends in reimbursement, consolidation and global growth appear to be positive factors supporting Cerner's continued growth. Only one negative jumps out with respect to Cerner: its valuation. The stock's trailing P/E currently stands at 36. That level is much higher than several of the competitors mentioned previously.
However, comparing the P/E multiples of GE and Siemens against Cerner's can be misleading since both of those companies are conglomerates, with health care representing a relatively small portion of total revenue. Cerner compares more favorably with AllScripts, which has a trailing P/E of 42.
My inclination is to go with Cerner despite the pricey valuation. Its P/E multiple, although high, is still near the lower end of its range over the past two years. The company has pretty much everything else going in its favor. I don't see those trends ending any time soon.