Shares of Cerner are up 20% this year but the medical records company can still rise much further as it is still cheap, activist investor Jeff Smith said Tuesday.
Smith, the CEO of Starboard Value, told CNBC's David Faber the company can expand its operating margins by about 3.5% if it meets certain targets the activist investor helped Cerner implement.
"The market is not giving them credit for those targets. We believe those targets are achievable," Smith said. "If they were to hit those targets, it would be a huge value opportunity at Cerner."
Smith did not specify in the interview what those business targets were, but added that operating margins in the company could improve by as much as 9% over the next 18 months.
Starboard — which has a 1.2% stake in the company — pressured Cerner into appointing two new board members. Two of those board member were picked by Starboard while the other two were selected by Cerner.
"We were able to reach a very constructive agreement with them," Smith said, adding: "It's a highly sticky business."
Earlier in the day, Smith unveiled a stake in auto auction house KAR Auction Services. Shares of KAR jumped more than 2% on the news.