Cerner: 5-star buy in healthcare IT

Our latest Focus Stock of the Week is Cerner (CERN), which carries S&P Capital IQ�s highest investment recommendation of 5-STARS, or strong buy.

Cerner is the largest pure-play provider of health care information technology (HIT);� its products and services help health care organizations manage their clinical, financial, and management information systems.

Fueling the industry�s robust growth are new regulatory requirements requiring the adoption of HIT and the growing recognition that HIT can improve safety, quality of care, and efficiency while lowering overall health care costs.

The American Recovery & Reinvestment Act � otherwise known as the �stimulus bill� � included $30 billion in financial incentives to physicians, hospitals, and other health care providers that adopt and use Electronic Health Record (EHR) technology.

Further, if health care providers do not meet the law�s �Meaningful Use� requirements by 2014, Medicare will lower their reimbursement rate by up to 5% beginning in 2015.
It has been estimated that as of December 2010, less than 20% of hospitals have fully operational EHR systems across their entire organization.

The criteria for meeting the requirements for Meaningful Use is a three-step process. The company believes that more than 30% of hospitals attesting to Stage 1 of Meaningful Use are Cerner clients.

In S&P Capital IQ�s view, these clients would likely utilize Cerner services and solutions for Stage 2 and Stage 3 as changing vendors and/or systems is complex and would likely cause disruptions.

In addition, within the Patient Protection and Affordable Care Act (the health care reform law) is the Value-Based Purchasing Program that will restructure how Medicare pays certain health care providers.

Starting in October 2012, hospitals will be paid incentives for inpatient acute care services based on the quality of care, not just the quantity of services they provide.

The goal of this initiative is to improve quality of care while lowering overall health care costs. HIT will play a crucial role in aiding hospitals in determining and enacting best practices in a timely manner.

Many countries throughout the world are at varying stages of implementing required HIT systems and solutions. Cerner has clients in more than 25 countries and international sales currently account for about 15% of its total sales.

We think Cerner, with its market leadership position and extensive product and services offering, is well-positioned to expand its market share both domestically and internationally.

In our view, Cerner�s robust and growing backlog provides investors with solid sales visibility. Lastly, we consider Cerner�s valuation compelling given our view of its long- term growth outlook.

Learn more about this financial newsletter at S&P The Outlook.