Intrinsic value of Cerner Corporation - CERN

Previous Close

$67.36

  Intrinsic Value

$28.92

stock screener

  Rating & Target

str. sell

-57%

Previous close

$67.36

 
Intrinsic value

$28.92

 
Up/down potential

-57%

 
Rating

str. sell

We calculate the intrinsic value of CERN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 21.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  5,575
  5,799
  6,037
  6,291
  6,560
  6,845
  7,147
  7,467
  7,805
  8,162
  8,539
  8,936
  9,355
  9,797
  10,262
  10,752
  11,268
  11,810
  12,381
  12,982
  13,614
  14,278
  14,977
  15,711
  16,483
  17,294
  18,146
  19,042
  19,983
  20,972
Variable operating expenses, $m
  4,526
  4,700
  4,886
  5,084
  5,294
  5,517
  5,753
  6,002
  6,266
  6,545
  6,665
  6,975
  7,302
  7,647
  8,010
  8,392
  8,794
  9,218
  9,664
  10,133
  10,626
  11,144
  11,689
  12,262
  12,865
  13,498
  14,163
  14,862
  15,597
  16,368
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  4,526
  4,700
  4,886
  5,084
  5,294
  5,517
  5,753
  6,002
  6,266
  6,545
  6,665
  6,975
  7,302
  7,647
  8,010
  8,392
  8,794
  9,218
  9,664
  10,133
  10,626
  11,144
  11,689
  12,262
  12,865
  13,498
  14,163
  14,862
  15,597
  16,368
Operating income, $m
  1,049
  1,098
  1,151
  1,206
  1,265
  1,328
  1,394
  1,465
  1,539
  1,617
  1,874
  1,962
  2,054
  2,150
  2,253
  2,360
  2,473
  2,592
  2,718
  2,850
  2,988
  3,134
  3,287
  3,449
  3,618
  3,796
  3,983
  4,180
  4,386
  4,603
EBITDA, $m
  1,700
  1,768
  1,840
  1,918
  2,000
  2,087
  2,179
  2,276
  2,379
  2,488
  2,603
  2,724
  2,852
  2,986
  3,128
  3,278
  3,435
  3,600
  3,774
  3,957
  4,150
  4,352
  4,565
  4,789
  5,024
  5,272
  5,532
  5,805
  6,091
  6,393
Interest expense (income), $m
  18
  24
  28
  32
  36
  40
  45
  50
  56
  61
  67
  74
  81
  88
  95
  103
  111
  120
  129
  139
  149
  160
  171
  183
  196
  209
  223
  237
  252
  268
  285
Earnings before tax, $m
  1,025
  1,071
  1,119
  1,171
  1,225
  1,283
  1,344
  1,409
  1,477
  1,550
  1,800
  1,881
  1,966
  2,055
  2,149
  2,249
  2,353
  2,463
  2,579
  2,700
  2,828
  2,963
  3,104
  3,253
  3,409
  3,573
  3,746
  3,927
  4,118
  4,318
Tax expense, $m
  277
  289
  302
  316
  331
  346
  363
  380
  399
  418
  486
  508
  531
  555
  580
  607
  635
  665
  696
  729
  764
  800
  838
  878
  920
  965
  1,011
  1,060
  1,112
  1,166
Net income, $m
  749
  782
  817
  855
  894
  937
  981
  1,029
  1,079
  1,131
  1,314
  1,373
  1,435
  1,500
  1,569
  1,642
  1,718
  1,798
  1,882
  1,971
  2,065
  2,163
  2,266
  2,375
  2,489
  2,609
  2,735
  2,867
  3,006
  3,152

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,969
  7,249
  7,546
  7,863
  8,200
  8,556
  8,934
  9,334
  9,756
  10,203
  10,674
  11,170
  11,694
  12,246
  12,828
  13,440
  14,085
  14,763
  15,477
  16,228
  17,017
  17,848
  18,721
  19,639
  20,603
  21,617
  22,683
  23,802
  24,979
  26,215
Adjusted assets (=assets-cash), $m
  6,969
  7,249
  7,546
  7,863
  8,200
  8,556
  8,934
  9,334
  9,756
  10,203
  10,674
  11,170
  11,694
  12,246
  12,828
  13,440
  14,085
  14,763
  15,477
  16,228
  17,017
  17,848
  18,721
  19,639
  20,603
  21,617
  22,683
  23,802
  24,979
  26,215
Revenue / Adjusted assets
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
Average production assets, $m
  2,855
  2,969
  3,091
  3,221
  3,359
  3,505
  3,659
  3,823
  3,996
  4,179
  4,372
  4,575
  4,790
  5,016
  5,254
  5,505
  5,769
  6,047
  6,339
  6,647
  6,970
  7,310
  7,668
  8,044
  8,439
  8,854
  9,291
  9,749
  10,231
  10,738
Working capital, $m
  608
  632
  658
  686
  715
  746
  779
  814
  851
  890
  931
  974
  1,020
  1,068
  1,119
  1,172
  1,228
  1,287
  1,350
  1,415
  1,484
  1,556
  1,632
  1,712
  1,797
  1,885
  1,978
  2,076
  2,178
  2,286
Total debt, $m
  510
  584
  663
  747
  836
  931
  1,031
  1,137
  1,249
  1,367
  1,492
  1,624
  1,762
  1,909
  2,063
  2,225
  2,396
  2,576
  2,765
  2,964
  3,173
  3,393
  3,624
  3,868
  4,123
  4,392
  4,674
  4,971
  5,283
  5,610
Total liabilities, $m
  1,847
  1,921
  2,000
  2,084
  2,173
  2,267
  2,368
  2,473
  2,585
  2,704
  2,828
  2,960
  3,099
  3,245
  3,399
  3,562
  3,732
  3,912
  4,101
  4,300
  4,510
  4,730
  4,961
  5,204
  5,460
  5,729
  6,011
  6,308
  6,619
  6,947
Total equity, $m
  5,122
  5,328
  5,547
  5,779
  6,027
  6,289
  6,567
  6,860
  7,171
  7,499
  7,845
  8,210
  8,595
  9,001
  9,428
  9,878
  10,352
  10,851
  11,375
  11,927
  12,508
  13,118
  13,760
  14,434
  15,143
  15,889
  16,672
  17,495
  18,359
  19,268
Total liabilities and equity, $m
  6,969
  7,249
  7,547
  7,863
  8,200
  8,556
  8,935
  9,333
  9,756
  10,203
  10,673
  11,170
  11,694
  12,246
  12,827
  13,440
  14,084
  14,763
  15,476
  16,227
  17,018
  17,848
  18,721
  19,638
  20,603
  21,618
  22,683
  23,803
  24,978
  26,215
Debt-to-equity ratio
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.200
  0.210
  0.210
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.280
  0.280
  0.290
  0.290
Adjusted equity ratio
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  749
  782
  817
  855
  894
  937
  981
  1,029
  1,079
  1,131
  1,314
  1,373
  1,435
  1,500
  1,569
  1,642
  1,718
  1,798
  1,882
  1,971
  2,065
  2,163
  2,266
  2,375
  2,489
  2,609
  2,735
  2,867
  3,006
  3,152
Depreciation, amort., depletion, $m
  650
  669
  690
  711
  734
  759
  784
  812
  840
  871
  729
  763
  798
  836
  876
  918
  962
  1,008
  1,057
  1,108
  1,162
  1,218
  1,278
  1,341
  1,407
  1,476
  1,548
  1,625
  1,705
  1,790
Funds from operations, $m
  1,399
  1,451
  1,507
  1,566
  1,628
  1,695
  1,766
  1,840
  1,919
  2,002
  2,043
  2,136
  2,233
  2,336
  2,445
  2,559
  2,679
  2,806
  2,939
  3,079
  3,226
  3,381
  3,544
  3,715
  3,895
  4,084
  4,283
  4,492
  4,711
  4,942
Change in working capital, $m
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  93
  98
  103
  108
Cash from operations, $m
  1,376
  1,427
  1,481
  1,538
  1,599
  1,664
  1,733
  1,805
  1,882
  1,963
  2,002
  2,092
  2,188
  2,288
  2,394
  2,506
  2,623
  2,747
  2,877
  3,014
  3,157
  3,309
  3,468
  3,635
  3,811
  3,996
  4,190
  4,394
  4,609
  4,834
Maintenance CAPEX, $m
  -458
  -476
  -495
  -515
  -537
  -560
  -584
  -610
  -637
  -666
  -696
  -729
  -763
  -798
  -836
  -876
  -918
  -962
  -1,008
  -1,057
  -1,108
  -1,162
  -1,218
  -1,278
  -1,341
  -1,407
  -1,476
  -1,548
  -1,625
  -1,705
New CAPEX, $m
  -106
  -114
  -122
  -130
  -138
  -146
  -155
  -164
  -173
  -183
  -193
  -204
  -215
  -226
  -238
  -251
  -264
  -278
  -292
  -308
  -323
  -340
  -358
  -376
  -395
  -415
  -436
  -459
  -482
  -506
Cash from investing activities, $m
  -564
  -590
  -617
  -645
  -675
  -706
  -739
  -774
  -810
  -849
  -889
  -933
  -978
  -1,024
  -1,074
  -1,127
  -1,182
  -1,240
  -1,300
  -1,365
  -1,431
  -1,502
  -1,576
  -1,654
  -1,736
  -1,822
  -1,912
  -2,007
  -2,107
  -2,211
Free cash flow, $m
  812
  836
  864
  893
  925
  958
  994
  1,032
  1,072
  1,114
  1,112
  1,160
  1,211
  1,264
  1,320
  1,379
  1,442
  1,507
  1,577
  1,649
  1,726
  1,807
  1,892
  1,981
  2,075
  2,174
  2,278
  2,387
  2,502
  2,623
Issuance/(repayment) of debt, $m
  67
  74
  79
  84
  89
  95
  100
  106
  112
  118
  125
  132
  139
  146
  154
  162
  171
  180
  189
  199
  209
  220
  231
  243
  256
  269
  282
  297
  312
  328
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  67
  74
  79
  84
  89
  95
  100
  106
  112
  118
  125
  132
  139
  146
  154
  162
  171
  180
  189
  199
  209
  220
  231
  243
  256
  269
  282
  297
  312
  328
Total cash flow (excl. dividends), $m
  879
  910
  943
  977
  1,014
  1,053
  1,094
  1,138
  1,184
  1,233
  1,237
  1,292
  1,349
  1,410
  1,474
  1,541
  1,612
  1,687
  1,766
  1,848
  1,935
  2,027
  2,123
  2,224
  2,331
  2,443
  2,560
  2,684
  2,814
  2,950
Retained Cash Flow (-), $m
  -194
  -205
  -219
  -233
  -247
  -262
  -278
  -294
  -311
  -328
  -346
  -365
  -385
  -406
  -427
  -450
  -474
  -499
  -525
  -552
  -580
  -610
  -642
  -675
  -709
  -745
  -783
  -823
  -865
  -908
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  685
  705
  724
  744
  766
  790
  816
  844
  873
  905
  891
  927
  964
  1,004
  1,047
  1,091
  1,139
  1,188
  1,241
  1,297
  1,355
  1,417
  1,482
  1,550
  1,622
  1,698
  1,777
  1,861
  1,949
  2,042
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  657
  645
  630
  613
  594
  574
  551
  527
  502
  474
  423
  395
  367
  337
  307
  277
  248
  219
  191
  165
  140
  118
  97
  79
  63
  50
  38
  29
  21
  15
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Cerner Corporation (Cerner) is a supplier of healthcare information technology (HCIT). The Company offers a range of intelligent solutions and services that support the clinical, financial and operational needs of organizations of all sizes. The Company's segments include Domestic and Global. The Domestic segment includes revenue contributions and expenditures associated with business activity in the United States. The Global segment includes revenue contributions and expenditures linked to business activity in Aruba, Australia, Austria, the Bahamas, Belgium, Bermuda, Brazil, Canada, Cayman Islands, Chile, Denmark, Egypt, England, Finland, France, Germany, Guam, India, Ireland, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, Norway, Portugal, Qatar, Romania, Saudi Arabia, Singapore, Slovakia, Spain, Sweden, Switzerland and the United Arab Emirates. The Company's solutions are offered on the unified Cerner Millennium architecture and on the HealtheIntent cloud-based platform.

FINANCIAL RATIOS  of  Cerner Corporation (CERN)

Valuation Ratios
P/E Ratio 34.9
Price to Sales 4.6
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 19.2
Price to Free Cash Flow 57.8
Growth Rates
Sales Growth Rate 8.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.7%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 13.7%
Total Debt to Equity 14.4%
Interest Coverage 52
Management Effectiveness
Return On Assets 11.6%
Ret/ On Assets - 3 Yr. Avg. 11.6%
Return On Total Capital 14.2%
Ret/ On T. Cap. - 3 Yr. Avg. 14.1%
Return On Equity 16.3%
Return On Equity - 3 Yr. Avg. 15.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 83.8%
Gross Margin - 3 Yr. Avg. 83%
EBITDA Margin 30%
EBITDA Margin - 3 Yr. Avg. 30%
Operating Margin 19%
Oper. Margin - 3 Yr. Avg. 19.7%
Pre-Tax Margin 19.1%
Pre-Tax Margin - 3 Yr. Avg. 19.8%
Net Profit Margin 13.3%
Net Profit Margin - 3 Yr. Avg. 13.6%
Effective Tax Rate 30.7%
Eff/ Tax Rate - 3 Yr. Avg. 31.3%
Payout Ratio 0%

CERN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CERN stock intrinsic value calculation we used $5366 million for the last fiscal year's total revenue generated by Cerner Corporation. The default revenue input number comes from 0001 income statement of Cerner Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CERN stock valuation model: a) initial revenue growth rate of 3.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CERN is calculated based on our internal credit rating of Cerner Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cerner Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CERN stock the variable cost ratio is equal to 81.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CERN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Cerner Corporation.

Corporate tax rate of 27% is the nominal tax rate for Cerner Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CERN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CERN are equal to 51.2%.

Life of production assets of 6 years is the average useful life of capital assets used in Cerner Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CERN is equal to 10.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4928.389 million for Cerner Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 324.296 million for Cerner Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cerner Corporation at the current share price and the inputted number of shares is $21.8 billion.

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