Luis Sanchez of Overlook Rock Asset Management presented his in-depth investment thesis on Cerner (Nasdaq: CERN) at Wide-Moat Investing Summit 2018.

Thesis summary:

Cerner is a leading IT company focused on the healthcare industry. The company is the #2 global provider of electronic health records software. Cerner also sells revenue cycle management software, healthcare IT outsourcing services, and population health management software which is a predictive analytics subscription product. Electronic health records software is critical IT infrastructure for hospitals and serves as the basic foundation for a hospital’s IT ecosystem. Cerner is deeply integrated with customers, creating a sticky client base (99% retention rate).

The company benefits from secular tailwinds that should enable revenue to grow at a high single-digit rate over the next ten years. Cerner is executing a plan to increase operating margin by 50-100 basis points per year. The combination of tailwinds and margin enhancement should enable the company to compound earnings growth at a double-digit rate for the foreseeable future.

Recently trading at ~14-15x EBITDA, investors can buy Cerner at a slight premium to the overall market for a high-quality asset with stronger earnings growth prospects.

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About the instructor:

Luis Sanchez is a Managing Partner at Overlook Rock Asset Management LLC, an investment firm which manages separate accounts for clients. Overlook Rock employs a quantamental investment approach which marries quantitative techniques with value investing principles.