CERN, TSS, GD

S&P 500: +18.48 (+2.16%)

Cerner (CERN) +10.71%
The reaction to Cerner’s earnings was another case in which investors feared the worst, but were relieved to see otherwise. Revenue fell short of estimates, which Cerner attributes to weakness in the economy, but the company expects a boost in the back half of the year.

Cerner sees some of the second-half boost coming from the $19 billion aimed at healthcare IT in the U.S. stimulus package – remember that Nancy-Ann DeParle, head of the newly created White House Office of Health Reform, was a Cerner board member and may have a bit of bias towards their products.

Cerner has a lot riding on the stimulus bill’s healthcare IT provision and, judging by Cerner’s current high valuation, investors have high expectations themselves.


Total Systems Services (TSS) -11.45%
Weak card issuing and transaction activity led to poor results from Total Systems and the company was unable to cut expenses fast enough to offset deteriorating transaction volume.

Even worse, hopes for a second-half rebound have faded as exchange rates weigh on results, pricing pressures hit the client base, sales pipeline activity slows, and card issuance and usage decline.

Washington Mutual’s deconversion during the first quarter led to a loss of roughly 20 million accounts as term fees only partially offset this loss. In addition, Total Systems is currently renegotiating with a large client where price concessions are expected in exchange for a long-term deal.

The company has managed itself well through a difficult period of sizable customer losses. We continue to view Total Systems as a leading provider of card processing services, but we expect ongoing business disruptions and price erosion in future quarters.


General Dynamics (GD) +5.39%
GD’s first-quarter results pleased investors as sales climbed across all segments for the defense contractor and the funded backlog grew 23 percent to $49.2 billion.

Exposure to the commercial aviation and business-jet industries caused the Aerospace segment to be GD’s only business to report a drop in operating profit. Over the past few years, GD’s growth has been fueled to a significant extent by Aerospace, but growth going forward will be driven increasingly by their defense segments.




Peter Lazaroff, Junior Analyst