Author Archives: Scalper1

Cerner Downgraded For Slowing Sales Growth, Migration To Services

Punished by investors a week ago for guiding Q1 a hair below Wall Street expectations, Cerner was punished again Tuesday by a Goldman Sachs downgrade. Cerner ( CERN ) stock was down more than 3%, near 50, in late-afternoon trading in the stock market today . Last week, shares touched a 21-month low of 49.89. Goldman Sachs analyst Robert Jones downgraded Cerner from buy to neutral and lowered its price target from 62 to 54, with a 3% upside potential. Cerner’s Q4 earnings beat, but its Q1 adjusted EPS guidance of 52 to 54 cents, on sales of $1.15 billion to $1.2 billion, slightly lagged at the midpoint the 54 cents and $1.178 billion consensus estimate of analysts polled by Thomson Reuters. The midpoint of guidance would mark a 22% year-over-year gain in EPS and a 27% gain in sales. Cerner also said Q1 new-business bookings would be flat with Q1 2015, at $1.15 billion to $1.25 billion. Last year’s Q1 bookings rose 32% from Q1 2014. Cerner’s is the largest pure-play health care information technology company in the U.S., competing with the  IBM ‘s ( IBM ) Watson Health subsidiary, health care IT software from Oracle ( ORCL ) and others. “As the model increasingly transitions from faster-converting software to slower-converting services, we think it will take strong execution for CERN to maintain 10%/15% revenue/EPS growth,” Jones wrote. “With this backdrop, we think it is more appropriate to benchmark CERN to more mature software and IT outsourcing comps, which trade at 19 (times the next 12-month price/earnings).” Jones said he similarly analyzed Cerner’s smaller rival Allscripts Healthcare Solutions ( MDRX ) and decided to maintain his neutral rating and 13 price target, with 7% upside potential. Allscripts was up a fraction, above 12, Tuesday afternoon. Shares of both IBM and Oracle were down more than 1% Tuesday afternoon.

China Yanks Western Digital Funds On U.S. Probe; SanDisk Deal At Risk

China’s Tsinghua Holdings pulled its $3.8 billion investment in Western Digital ( WDC ) early Tuesday amid a U.S. government inquiry, prompting the disk drive maker to slash its already threatened bid for flash memory maker SanDisk ( SNDK ). The SanDisk acquisition, announced Oct. 21, will have to hurdle a Western Digital shareholder vote, which would not have been required with the investment by Tsinghua subsidiary Unisplendour. Western Digital stock sank 7.2% to 42.77 on the stock market today , while SanDisk stock lost 1.6% to 66.61. Western Digital Investor Opposes Bid On Monday, Western Digital investor Alken Asset Management wrote an open letter claiming the $19 billion offer for SanDisk was “simply too high.” SanDisk, an Apple ( AAPL ) supplier, faces competitive headwinds in 2016. Alken owns about 2% of Western Digital stock. The vote is slated for March 15. The Unisplendour investment would have given it a 15% stake in Western Digital. Unisplendour terminated its Western Digital investment after the Committee on Foreign Investment in the U.S. said it would investigate. Neither Western Digital nor Unisplendour will pay a termination fee. In December, Summit Research analyst Srini Sundararajan told IBD that Tsinghua Holdings was trying to get its hands on SanDisk technology. Chip-arm Tsinghua Unigroup plans to invest $47 billion in semiconductor technology to become the world’s No. 3 chipmaker, leapfrogging  Qualcomm ( QCOM ). It wouldn’t be the first time a Tsinghua Holdings bid for U.S. technology was shuttered on regulatory concerns. A rumored $23 billion bid for Micron Technologies ( MU ) by Tsinghua Unigroup seemingly fell flat last year on worries that CFIUS would stop the deal. Micron shares fell 5.1% to 10.49. SanDisk Acquisition Remains ‘Compelling’ By terminating its Western Digital investment, Unisplendour triggered an alternative deal between Western Digital and SanDisk. Western Digital will now pay $67.50 per share in cash and 0.2387 in stock for SanDisk, for a value near $78.50 per share at Western Digital’s Monday closing price. The original deal valued SanDisk at 86.50 a share. Despite the failed Unisplendour bid, the demand for data storage is rising, Western Digital CEO Steve Milligan said Tuesday in a statement. By acquiring SanDisk, Western Digital would get easy access to Nand (flash memory). “We believe the strategic rationale of this acquisition is even more compelling today than when we first announced it in October last year, given industry trends and strong execution by both companies,” Milligan said in the statement. The SanDisk deal has been expected to close in Q2. Western Digital said it continues to see $500 million in synergies within 19 months of the closure and $1.1 billion by 2020. If the deal fails, Western Digital must pay SanDisk $184 million. Toshiba Could Benefit Western Digital RBC analyst Amit Daryanani sees the Western Digital-SanDisk deal being 34% dilutive without the Unisplendour investment. The ongoing shift to 3D Nand has pressured average sales prices for SanDisk’s bread-and-butter Nand business, he wrote in a research report. “While we think the long-term rationale of owning HDD (hard disk drive) and Nand under one umbrella is logical, the near-term implications of this could be negative,” he wrote. Needham analyst Richard Kugele notes the $17 billion debt that Western Digital will incur if it acquires SanDisk. But a partnership with Toshiba via SanDisk could buoy Western Digital. Toshiba manufactures SanDisk’s Nand. “Nothing will change the aggressive nature of the Nand industry, but partially owning a fab through the Toshiba partnership should help Western Digital over time navigate those waters,” Kugele wrote in a research report. Daryanani rates Western Digital stock outperform and has a 68 price target. Kugele rates Western Digital stock a strong buy and has a 90 price target.