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Balanced View on Omnicell

Zacks Equity Research

On Feb 24, 2014, we issued an updated research report on Omnicell Inc. (OMCL). The company recently reported a mixed fourth-quarter 2013 with its EPS lagging the Zacks Consensus Estimate and revenues coming in higher than expected.

Omnicell also provided its business outlook for the first quarter and full year 2014. For the first quarter, the company expects revenues of $96−$98 million. The current Zacks Consensus Estimate for revenues of $97 million lies at the mid-point of the guidance range. The company expects its adjusted EPS to be approximately 23 cents. The Zacks Consensus Estimate of 17 cents falls below the company’s EPS estimate.

Omnicell expects revenues for the full year in the range of $415–$425 million (estimated growth of 9–12%). The current Zacks Consensus Estimate of $422 million lies near the upper end of the guided range. The full year adjusted EPS forecast lies in the band of $1.17–$1.23. The Zacks Consensus Estimate is pegged at 95 cents, far below the company’s guidance. At the end of 2014, Omnicell expects product bookings of $340–$350 million.

At the same time, we note that the three-pronged strategy is boding well for the company’s growth performance. Moreover, the MTS acquisition has provided a firm foundation to compete in the non-acute care market. In addition, multi-med medication adherence solutions continue to do well in Europe with over 500,000 patients receiving the prescriptions for medication adherence solutions each week. While top-line synergy from the MTS acquisition was a major catalyst, several contract wins in the domestic and offshore market are likely to boost organic growth going ahead.

However, we are concerned with rising product costs and operating expenses. The company expects this escalation to continue even in the coming quarter as unfavorable product mix will lead to drag in gross margin. Although the three-pronged strategy of domestic expansion, selective acquisitions and targeted international expansion is expected to yield positive results, near-term visibility is still a matter of question. Constrained hospital spending also remains a major headwind for the company. The ongoing hospital consolidation trend that might alter Omnicell’s client base warrants caution. Moreover, the company faces intense competition in the medication management and supply chain solutions market rampant with larger players.

The stock currently carries a Zacks Rank #2 (Buy).

Key Picks from the Sector

Nonetheless, medical stocks such as Natus Medical Inc. (BABY), AngioDynamics Inc. (ANGO) and ABIOMED, Inc. (ABMD) are expected to do well. While BABY carries a Zacks Rank #1 (Strong Buy), ANGO and ABMD hold a Zacks Rank #2 (Buy).

Read the Full Research Report on OMCL
Read the Full Research Report on ANGO
Read the Full Research Report on ABMD
Read the Full Research Report on BABY

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