Better Buy: Veeva Systems Inc. vs. Cerner Corporation

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Veeva Systems (NYSE: VEEV) and Cerner (NASDAQ: CERN) rank as two of the most successful healthcare technology companies of the past five years. Veeva's customer relationship management (CRM) and content management systems have become a hot commodity in the life-sciences industry, while Cerner is the giant of electronic health record (EHR) systems for hospitals and physicians.

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But which one of these healthcare technology stocks is the better choice for investors now? Here's how Veeva Systems and Cerner compare.

The case for Veeva Systems

Few stocks in any industry have enjoyed the kind of growth Veeva Systems has had. Its customer count has quintupled in the past five years. Earnings increased at an impressive 44% annual rate during the same period. Veeva stock has soared 120% since the beginning of 2016.

Can Veeva keep up its tremendous momentum? Its chances look pretty good. Veeva has currently penetrated only around 10% of its core market in life sciences. The company continues to launch new products to capture even more of that market.

And Veeva's systems are really "sticky" -- customers don't want to switch. Part of the reason, of course, is that it's a painful process for a customer to move all of its data to a new system and train users on the system. The other reason, though, is that there really aren't better alternatives available. Veeva tailored its applications to meet the needs for big (and little) pharma. 

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Veeva is also looking to grow beyond the life-sciences space. The company recently closed a deal with a large consumer packaged-goods company for its Veeva Vault content management platform. Look for more growth for Veeva as it spreads its wings beyond its core market. 

The case for Cerner

Cerner has been around a lot longer than Veeva, so it's not surprising that the company can't boast similar growth in recent years. However, the big EHR vendor's performance still looks really good: Earnings have grown by an average annual rate of more than 17% over the last five years.

The company should be able to continue to grow earnings close to that level over the next few years. That's impressive, especially considering that Cerner's previous growth was fueled in large part by federal incentive money to healthcare providers for implementing EHR systems. Those incentives aren't in place any more.

Cerner benefits from a moat that's similar to that of Veeva Systems. Customers aren't likely to undergo the agonizing process of switching EHR systems very often. It can take a hospital, for example, one to two years (and sometimes longer) to convert to a new system.

Attracting new customers hasn't been too difficult for Cerner -- a fact that's underscored by the record-high bookings recorded by the company in the most recent quarter. The company claims a win rate of more than 50% over the past couple of years. Flipping customers from rivals with less robust systems should provide plenty of growth opportunities for Cerner in the future.

Better buy

Cerner is the better pick when it comes to valuation. The big healthcare technology provider's stock trades at 23 times expected earnings compared to 63 times expected earnings for Veeva. Even with Wall Street expecting Veeva to grow earnings at a higher rate, Cerner stock appears to be more attractively valued.

However, I suspect Veeva could beat Wall Street's growth projections if it gains traction outside of the life-sciences industry. Veeva stock is more expensive -- but for a good reason, in my view. I like Cerner and expect the stock to be a winner. I think, though, that the better pick right now is Veeva Systems. This hot stock could get even hotter in the next few years.

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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Veeva Systems. The Motley Fool recommends Cerner. The Motley Fool has a disclosure policy.