Editor's Note: Please note that Healthcare analyst Tom Tobin will send out a full report outlining our high-conviction short thesis. In the meantime, below is a brief summary written by Hedgeye CEO Keith McCullough this afternoon.
Our healthcare team (Tom Tobin and Andrew Freedman) just wrapped up an excellent Best Ideas call (on the bear side) on Cerner (CERN). With the stock bouncing alongside US Equity Beta (a bounce we were setting up for on more #GrowthSlowing data), I say you sell yourself some (insiders have been).
Summary: Cerner has secured its dominance as the #2 EHR vendor in the U.S. and #1 Healthcare IT vendor in the world. While we don't believe this will change anytime soon, we also don't believe they are immune to the challenges of a saturated market with limited replacement opportunity. Using data from HIMSS Analytics, which is inclusive of 100% of hospitals and health systems in the United States, we have constructed a "virtual pipeline" for the entire Hospital EHR Industry.
Based on our analysis, we expect Cerner's core market to slow and likely decline, driving the stock from the current price of $63 to the $50 level and below.