Call Options Or Put Options On Cerner (CERN)?

| August 22, 2012 | 0 Comments

CERN OptionsCerner (CERN) is a health care technology company.  Their systems manage all aspects of a patient’s healthcare record.  

CERN’s platform has helped transform the entire health care system.  It’s changed the way people use and share information, pay for health care, and even think about health care.

CERN currently trades for $71.58 per share.  The shares are up more than 28% from the 52-week low of $55.51.  But the shares are down more than 18% from the recent 52-week high of $88.32.    

Is this an opportunity to buy call options on CERN as business picks up in the second half?  Or should you buy put options on CERN as growth falls short of expectations?

The bulls make a convincing argument…

CERN’s firing on all cylinders.  Revenue is growing, earnings are growing, and new business is flooding in the door.

And for good reason…

The HITECH Act was enacted as part the American Recovery and Reinvestment Act of 2009.  It promotes the adoption of technology in the health care industry with $25.9 billion in government spending.

In essence, the government is paying for the health care system to move their medical records into the digital world.  But in order to qualify for these payments, they must meet the HITECH Act’s requirements by 2016. 

What’s more, doctors will begin being penalized by Medicare for not using electronic health records in 2015. 

As we move closer to this deadline, health care providers have a huge incentive to adopt these changes.  And CERN’s systems are an easy and cost effective way for them to meet these requirements.

I’m expecting CERN’s growth to accelerate as more health care professionals jump on board with this proven system to comply with the HITECH Act.  And that’s a huge catalyst to propel the stock to the upside.

But the bears have a compelling case as well… 

It’s no secret that health care professionals are being forced to make huge investments in technology.  In fact, it’s ultra-competitive.  Tech companies of all shapes and sizes have products that help health care professionals comply with the HITECH Act.

The fact is CERN has already priced in massive amounts of growth.  The stock trades at a price to earnings multiple of 35.  That’s a fair valuation for the company.

The risk comes from not living up to the lofty expectations analysts have set for the company. 

Just last quarter, CERN fell short of the bookings of new business analysts were expecting.   It was the first time in two years they failed to exceed estimates… a troubling development for a company expecting high levels of growth.

Put simply, if they can’t bring in enough business to meet expectations, the stock is set for a fall.

If you think the bulls are right, take a look at buying the CERN December 2012 $80 Call for around $1.80. 

If you think the bears are right, take a look at buying the CERN December 2012 $65 Put for around $2.30.

***Editor’s Note***  The Us Dollar sure has been in the news a lot lately.  The good news is, all the action has created some pretty good opportunities in the currency market– if you know what you’re doing.  Instead of looking at all those BS “forex systems”, here’s something we’ve found that’s been around awhile and actually seems to work.

Good Investing,

Corey Williams

Tags: , , ,

Category: Call Or Put Options?

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.