Some parts of healthcare are very familiar to most people, such as prescription drugs and hospitals. But there are also less visible aspects of healthcare that are very important -- and that present solid investment opportunities. The systems and technology used by biopharmaceutical companies to develop prescription drugs and that hospitals use to track patients' medical data are great examples.
Veeva Systems (NYSE: VEEV) and Cerner Corporation (NASDAQ: CERN) stand out as two of the top providers of these healthcare systems. Veeva has definitely been the bigger winner lately, with its stock soaring nearly 40% so far in 2018. Meanwhile, Cerner stock is down more than 10% year to date.
But which of these two healthcare technology stocks is the better pick for investors looking to the future? Here's how Veeva and Cerner compare.
The case for Veeva Systems
An ideal stock would have a huge market opportunity in front of it and a strong moat that protects it from competition. Veeva Systems checks off both boxes.
Veeva is the leader in cloud-based software for the life sciences industry. The company has enjoyed tremendous success, with its customer base including many of the world's largest drugmakers. But Veeva still has plenty of room to grow.
The company's initial product was a cloud-based customer relationship management (CRM) system. Veeva still makes more than 60% of its total revenue from its CRM offerings. However, the company's Vault content management software represents an even bigger growth opportunity.
Veeva isn't limiting itself to the life sciences industry. The company has made inroads into the consumer packaged goods and chemicals industries, picking up some big customers along the way with its new quality management software.
How big is the total addressable market for Veeva? The company's management estimates an opportunity of more than $8 billion annually. Veeva's revenue in 2017 was close to $686 million.
In addition to a large potential market, Veeva enjoys a strong moat thanks to the high costs for customers to switch to another system. Customers invest a lot of time loading data into Veeva's systems and training employees on the systems. To move to one of Veeva's rivals, they would spend a lot more time and money.
Veeva knows this, of course, and continues to roll out more new applications to make it even "stickier" for customers. The more of Veeva's systems a customer uses, the less likely they are to switch to another software provider.
The case for Cerner
Cerner ranks as the 800-pound gorilla in the health information management system market for hospitals and clinics. The company's technology is used by more than 27,000 provider facilities across the world. Cerner ranks either No. 1 or No. 2 in market share in all but one global region.
The reasons to buy Veeva also apply for Cerner, although the two companies' markets are quite different. Most U.S. hospitals and clinics already have electronic medical record (EMR) systems. However, Cerner thinks that it has a great opportunity to replace competitors' systems.
Around 2,000 sites use older legacy systems. Cerner views these sites as prime targets for conversion to its integrated software. In addition, the company thinks that industry consolidation should work in its favor. As healthcare providers merge and make acquisitions, they're likely to want the scale and standardization that a major player like Cerner can give.
Cerner also sees plenty of growth opportunities for key products. Revenue from the company's population health management solutions grew 20% in 2017. Cerner's revenue cycle management software enjoyed 15% revenue growth last year.
As is the case with Veeva, customers that use Cerner's systems have high switching costs. Implementing EMR, revenue cycle management, and other systems requires massive investments in time and money. Once a customer chooses to go with Cerner, they're highly likely to remain a customer over the long run.
Which stock is the better pick? My choice is Veeva.
Cerner has hit a few bumps in the road recently. The company reported lower-than-expected revenue in the first quarter and cut its full-year 2018 revenue outlook. Although a big reason for this stemmed from the delay in a large contract that Cerner expected to close, the company isn't enjoying the solid growth that it once did.
Veeva, on the other hand, continues to attract more new customers and sign up more existing customers on additional applications. At first glance, Veeva's forward earnings multiple of nearly 51 might be scary. However, the company's outstanding growth prospects make it an even better value than Cerner, in my opinion. I think Veeva will keep up its winning ways.
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