Cerner Corp. has signed a long-awaited contract with the U.S. Department of Veterans Affairs to upgrade its electronic health records system, giving analysts more confidence that the North Kansas City, Mo.-based healthcare technology company will be able to meet its earnings target for the year.
The 10-year contract, which could be worth as much as $10 billion, had been expected to be signed in 2017.
However, the contract ran into delays when former VA Secretary David Shulkin ordered a study in December 2017 into how well the new records system would operate with community providers' systems. Then on April 26, President Donald Trump's candidate to lead the VA, Rear Admiral Ronny Jackson, withdrew his name from consideration, amid allegations that he improperly dispensed controlled substances, engaged in excessive drinking on the job and created a hostile work environment.
The uncertainty, in part, forced the company to reduce its guidance for full-year revenue to between $5.33 billion and $5.45 billion, down from a range of $5.45 billion to $5.65 billion.
Announcing the contract in a press release, acting VA Secretary Robert Wilkie said in a statement: "This is one of the largest IT contracts in the federal government, with a ceiling of $10 billion over 10 years. And with a contract of that size, you can understand why former Secretary Shulkin and I took some extra time to do our due diligence and make sure the contract does what the President wanted."
Cerner President Zane Burke, in a press release, said, "We're honored to have the opportunity to improve the healthcare experience for our nation's veterans. The VA has a long history of pioneering health care technology innovation, and we look forward to helping deliver high-quality outcomes across the continuum of care."
The company did not respond to S&P Global Market Intelligence's request for comment on whether it is adjusting its outlook.
Canaccord Genuity analyst Richard Close reiterated Cerner's "buy" rating in a May 17 note.
"Finalizing the contract between the VA and Cerner (as the prime contractor) provides us with greater confidence that the company's annual targets for 2018 are achievable. Exiting 1Q'18, we expressed concern that if the contract encountered further delays, additional downward revisions were a risk," Close stated.
