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Omnicell, Inc. OMCL is well poised for growth in the coming quarter backed by progress in its three-legged strategy, which is driving growth. Omnicell’s 2025 roadmap looks impressive. However, escalating costs and stiff competition are concerning.
In the past year, shares of this Zacks Rank #3 (Hold) company have gained 95.6% compared with the industry’s 33.5% growth and 52.4% rise of the S&P 500.
The renowned developer and provider of end-to-end automation solutions for the medication-use process has a market capitalization of $5.82 billion. The company projects 12% growth for the next five years. Further, it surpassed earnings estimates in three of the trailing four quarters, delivering a surprise of 8.52%, on average.
Riding on the company’s current growth strategy and bullish near-term prospects, this stock is worth holding on to, for now.
Key Growth Catalysts
Product Innovation Driving Growth: We are optimistic about Omnicell’s progress with its three-legged strategy that covers market expansion through delivery of differentiated, innovative solutions; expansion into new markets, primarily outside the United States; and expansion through partnerships and acquisition of new technologies.
In this line, in 2020, the company expanded its autonomous pharmacy portfolio with the strategic and accretive acquisition of PSG's 340B Link business, now called Omnicell 340B. This year, the company has seen rapid growth in SaaS, subscription software and tech-enabled services bookings. Further, with a robust portfolio of tech-enabled services that complement and enhance core hardware products, Omnicell is currently targeting to drive recurring revenue growth in advanced services. The company is forecasting 50% CAGR in advanced services from 2020 through 2025.
2025 Roadmap Looks Impressive: In terms of its 2025 financial roadmap, Omnicell is targeting a 14% to 15% compounded total annual revenue growth rate from 2021 to 2025. Over the same period of time, it is also targeting expansion of non-GAAP EBITDA margin from 21% in 2021 to 25% by 2025, representing growth of approximately 400 basis points. According to the company, its strong position in the market, growing customer base and strategic focus on innovation will help it achieve these goals.
On the flip side, there are some factors that have been deterring the stock’s rally of late.
Escalating Costs: Omnicell has adopted several strategies to drive its top line, including portfolio expansion, acquisitions and further penetration in the medication adherence market. Thus, the company continues to battle escalating costs. Also, the company continues to expect an uptick in costs in the upcoming quarters.
Competitive Landscape: Omnicell faces intense competition in the medication management and supply chain solutions market. Major direct competitors in the medication packaging solutions market like Drug Package, Inc., AutoMed Technologies, Inc., Manchac Technologies, LLC and RX Systems, Inc. still pose threats as they spearhead several expansion programs.
Omnicell is witnessing a positive estimate revision trend for the current year. In the past 90 days, the Zacks Consensus Estimate for earnings has moved 14.2% north to $3.53.
The Zacks Consensus Estimate for first-quarter 2021 revenues is pegged at $245.4 million, suggesting 6.82% growth from the year-ago reported number.
A few better-ranked stocks from the broader medical space are InMode Ltd. INMD, Owens & Minor, Inc. OMI and Envista Holdings Corporation NVST, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of Zacks #1 Rank stocks here.
InMode has a projected long-term earnings growth rate of 12.4%.
Owens & Minor has an estimated long-term earnings growth rate of 15%.
Envista Holdings has an expected long-term earnings growth rate of 24%.
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