Veeva Systems vs. Cerner: Which Is Best?
Healthcare stocks have traditionally been seen as a safe long-term bet, especially in the coming years as the baby boomer population ages.
When combined with high-tech advances like cloud computing and SaaS (software as a service), the upsides are even more promising.
Businesses that use cloud computing host their data and applications on a remote server and access them using the Internet, rather than managing them on their own IT infrastructure.
SaaS is one form of cloud computing in which companies subscribe to have access to a software application that is hosted in the cloud.
Veeva Systems [NYSE: VEEV] and Cerner Corporation [NASDAQ: CERN] are two of the biggest names in cloud-based SaaS for healthcare services, so it’s only natural to compare them. At this point in time, is Veeva stock or Cerner stock a better buy for potential investors?
The Pros and Cons of Buying Cloud-based Healthcare Management Stocks
Here is the good, bad, and ugly of buying cloud-based healthcare management stocks.
Cloud computing and SaaS trends: Once a tech buzzword, “cloud computing” is now a mature business strategy. 83 percent of healthcare organizations now use the cloud in some form or fashion, and two-thirds of them use SaaS.
Positive recent returns: Healthcare and utilities companies were the only two categories of stocks to finish 2018 higher than they started. Because it’s essential regardless of the state of the economy, healthcare can often weather downturns better than other sectors.
Future growth: According to BCC Research, the North American healthcare cloud computing market, which was worth $5.7 billion in 2017, will nearly double in value to $10.2 billion in 2022.
The cons of buying cloud-based healthcare management stocks include:
Security risks: Moving to the cloud is generally more secure than traditional IT solutions, but it also comes with its own risks. News of a data breach or other catastrophe can send a company’s stock plummeting.
Heightened competition: There are a lot of major players in the healthcare IT space, and the success of one can be the downfall of another.
Besides Cerner Corporation [NASDAQ: CERN] and Veeva Systems [NYSE: VEEV], other big names in healthcare IT are Allscripts [NASDAQ: MDRX], Epic, and athenahealth.
Should You Invest In Cerner?
Cerner provides a diverse range of healthcare IT products and services, including systems for data management and financial management.
In 2018, Cerner Corporation [NASDAQ: CERN] had a 24 percent healthcare IT market share, partnering with 27,000 healthcare providers in 35 countries.
As of this writing, Cerner Corporation [NASDAQ: CERN] shares are up by 11% in 2019, starting the year off with a bang.
The company reported revenue of $5.4 billion in 2018, which represents a growth of 4% year over year.
The stock is currently rebounding from a prolonged downturn in the fourth quarter of 2018.
During a major market slump in October, Cerner Corporation [NASDAQ: CERN] was one of the worst affected stocks.
The company announced mediocre Q3 returns on the low side of estimates, causing it to lose 12% of its value in a single day.
There are a few other facts that should give potential Cerner Corporation [NASDAQ: CERN]investors pause.
Unlike Veeva, Cerner currently has debt of $441 million after acquiring Siemens Health Services in 2015. This makes for an operating cash to debt ratio of 3.16x, which is not outlandish but could stop Cerner from fully profiting from a market downturn.
Is Veeva A Buy or a Sell?
Veeva [NYSE: VEEV] provides cloud computing solutions to companies in the pharmaceutical and life sciences industries.
The company currently has roughly 700 customers that it provides with software for customer relationship management (CRM), data management, and application development.
Veeva Systems [NYSE: VEEV] has been having an even better year than Cerner, with shares up 35% since January 1.
While Cerner stock sharply declined in 2018, Veeva had a banner year, rallying by roughly 70%. This year, the company expects to have its first $1 billion in annual sales.
With such strong results, it’s no surprise that Veeva was recently ranked the second fastest growing enterprise software company by Fortune magazine.
Last year, CEO Peter Gassner announced that Veeva also planned to expand beyond its core market, already acquiring its first seven-figure customer outside life sciences.
The preeminent concern for Veeva [NYSE: VEEV] in the medium term will be managing its growth prospects while not spreading itself too thin.
In addition, as of this writing Veeva has a price-to-earnings-to-growth (PEG) ratio of 1.66, indicating that it may be slightly overvalued.
This could be an indication that Veeva stock would be especially affected by a market recession, which many analysts are worried about in 2019.
Veeva Systems vs. Cerner: Summary and Forecast
When comparing Cerner and Veeva head-to-head, the answer is fairly clear. Although both stocks have the potential for future growth, Veeva shows the most promise in the short and medium term. Due to Cerner’s lackluster results from Q4 2018, the stock doesn’t have the same momentum as Veeva.
The good news for both companies is that healthcare IT companies tend to be quite “sticky” once they’ve been acquired, unlikely to switch to another vendor unless they have a very good reason for it.