Here's Why Investors Should Retain Omnicell (OMCL) Stock Now
Omnicell, Inc. OMCL is well poised for growth in coming quarters owing to strong execution of strategies, disciplined cost management and revenue timing. An increase in Omnicell’s service revenues emphasizes its digital transformation strategy. However, stiff competition and mounting operating expenses raise apprehension.
In the past year, the Zacks Rank #3 (Hold) stock has declined 48.9% compared with a 35.1% decline of the industry and a 16.9% fall of the S&P 500.
The renowned medical device solutions provider has a market capitalization of $2.06 billion. Its first-quarter 2023 earnings beat the Zacks Consensus Estimate by 208.4%. The long-term expected growth rate is estimated to be 9.4% compared with the industry’s projection of 19.3%.
Let’s delve deeper.
Strategic Imperatives to Drive Growth: Omnicell is progressing well with its 3-legged strategy that covers market expansion through delivery of differentiated, innovative solutions, expansion into new markets primarily outside the United States, and expansion through strategic partnerships and acquisition of new technologies.
In the second quarter of 2023, a central pharmacy customer in Minnesota decided to upgrade its automated dispensing system to Omnicell’s XT cabinets and also contracted for an inventory optimization service. Another existing XT customer, based in Southern California, chose Omnicell's specialty pharmacy services to support the launch of a health system-owned specialty pharmacy.
Following the successful implementation of inventory optimization service for a group of its hospitals, a major southern health system has expanded the service to nearly 20 hospitals.
2025 Roadmap Looks Impressive: OMCL is targeting to reach $1.9-$2 billion of revenues by 2025, with a 14-15% compounded total annual revenue growth rate from 2021 to 2025. It is also aiming an expansion of non-GAAP EBITDA margin from 21% in 2021 to 25% by 2025, representing a margin expansion of approximately 400 bps. The company is well-positioned to deliver on 2025 total revenue growth targets, driven by factors like growing its tech services revenues, benefits from long-term sole source customer partnerships, multi-year co-development plans and increased average deal sizes.
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For full-year 2022, OMCL delivered non-GAAP EBITDA of $193 million, above the previously guided range of $177-$183 million as announced during the third-quarter 2022 earnings call.
Strong Liquidity and Capital Structure: Omnicell exited second-quarter 2023 with cash and cash equivalents of $399.5 million compared with $330.4 million as of Dec 31, 2022. The company did not report any short-term debt on its balance sheet at second-quarter end, which highlights a sound solvency position. Further, it had debt-to-capital of 32.8% at second-quarter end compared with the industry’s 40.2%.
Downsides
Escalating Expenses May Strain Margins: OMCL has adopted several strategies to drive its top line including portfolio expansion, acquisitions and further penetration in the medication adherence market. Similar to its healthcare system partners, the company’s operations continue to be affected by persisting labor shortages and increased inflationary costs related to components’ raw materials and freight.
Competitive Landscape: Omnicell faces intense competition in the medication management and supply-chain solutions market. Even though the company continues to gain market share from other traditional providers of medication management and supply-chain solutions, major players are Becton Dickinson/CareFusion Corporation, ARxIUM, Cerner Corporation, Talyst, Inc., Emerson Electronic Co., WaveMark Inc.
Estimate Trend
In the past 60 days, the Zacks Consensus Estimate for Omnicell’s 2023 earnings per share has moved from $1.65 to $1.76.
The Zacks Consensus Estimate for 2023 revenues is pegged at $1.18 billion, suggesting an 8.8% fall from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, HealthEquity, Inc. HQY and Integer Holdings Corporation ITGR.
DaVita, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 12.7%. DVA’s earnings surpassed estimates in three of the trailing four quarters and missed once, with an average surprise of 21.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
DaVita has risen 19.1% against the industry’s 0.4% decline in the past year.
HealthEquity, currently carrying a Zacks Rank #2 (Buy), has an estimated long-term growth rate of 23.5%. HQY’s earnings surpassed estimates in all the trailing four quarters, with an average surprise of 13%.
HealthEquity has gained 3.4% against the industry’s 4% decline in the past year.
Integer Holdings, presently carrying a Zacks Rank #2, has an estimated long-term growth rate of 12.1%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 8.4%.
Integer Holdings has improved 28.5% compared with the industry’s 4.2% growth in the past year.
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DaVita Inc. (DVA) : Free Stock Analysis Report
Omnicell, Inc. (OMCL) : Free Stock Analysis Report
HealthEquity, Inc. (HQY) : Free Stock Analysis Report
Integer Holdings Corporation (ITGR) : Free Stock Analysis Report
