Though Cerner Corp.'s sales are off and its stock has plummeted, several analysts see good chances the information technology systems company will rebound, as both it and the healthcare IT market remain basically in good shape.
Cerner's problems started last Thursday, when the Kansas City, Mo.-based company announced it expected to earn between 13 cents and 15 cents a share for the quarter, sharply lower than Wall Street estimates of 38 cents a share.
In a release, Cerner blamed the lower projection on clients' postponements of IT purchases and loss of some expected new business.
As a result of the announcement, shares of Cerner plummeted 45%, to $17.63, in one day. Now, a week later, they are at $17.08, a four-year low.
Cerner also faces a flurry of class action lawsuits tied to the decline in stock value, charging that the company failed to inform investors of the sales declines.
But Cerner officials argue the declines are just temporary. Sheldon Dorenfest, a Chicago-based analyst, says he agrees.
"Cerner is still a strong company," says Dorenfest, who publishes healthcare IT industry reports.
He notes that Cerner is still reeling from losing a bid for a huge healthcare IT contract with Oakland, Calif.-based Kaiser Permanente to Epic Systems Corp.--part of the HMO's $1.8 billion project to automate its medical records system--but says it will get over the loss.
Also, he says the war in Iraq and "the uncertainty in the U.S. economy might have convinced some people to delay things a few weeks," enough to take projects off the second-quarter books, but the projects are by no means scotched.
Sean Wieland, an analyst in Boston with W.R. Hambrecht & Co., agrees that Cerner's problems are temporary.
Wieland says some hospitals, Cerner's main customers, are putting off buying new IT systems because of a reduction in Medicare and Medicaid reimbursements, as well as because of a temporary redeployment of resources from IT to complying with HIPAA privacy rules this month and HIPAA transactions and code set rules in October.
"IT spending is more discretionary because it's not a revenue-producing line item," he says, but he adds that customers still are committed to purchase healthcare IT systems.
Also, Wieland says Cerner used to dominate the market but now it has to share it with strong competition, as shown when Epic won the Kaiser contract in February.
At Madison, Wis.-based Epic, CEO Judy Faulkner concedes that Cerner's problems are partly due to the fact that it is a publicly traded company that always needs to please investors.
"I'm just very grateful that we're not public," the Epic head says. "If you don't make the analysts' earnings targets, it isn't necessarily the fault of the company."
Of course, Faulkner agrees that Cerner faces tougher competition from companies like her own.
"We are busier than ever," she says, adding that sales are projected to be 30% higher than last year.
Faulkner insists the growth is not just due to the Kaiser contract. She says the company is adding more sales people to keep up with new sales.