Here's Why You Should Retain Omnicell (OMCL) Stock Now
Omnicell OMCL is well-poised for growth in the coming quarters, backed by the strength of its advanced services. The company had several key customer wins for the portfolio, highlighting the essential role it plays in improving patients’ health. A sound financial position is also promising.
Meanwhile, the inflationary impact in the form of higher expenses may dent the margins in the remaining half of the year. The company also faces intense competition from its peers.
In the past year, this Zacks Rank #3 (Hold) stock has declined 41.8% compared with the 35.3% fall of the industry and the 13.5% growth of the S&P 500 composite.
The renowned healthcare technology company has a market capitalization of $2.58 billion. It has an estimated earnings growth of 34.6% compared with the S&P 500’s 16.69%. Omnicell surpassed estimates in all the trailing four quarters, delivering an average negative earnings surprise of 208.44%.
Let’s delve deeper.
Tailwinds
Robust Pipeline for Advanced Services Portfolio: Over the past few years, the company has made three key acquisitions intended to enhance its advanced services offerings. On the first-quarter 2023 earnings call, it noted that the integration of ReCept (rebranded as Omnicell Specialty Pharmacy Services), and FDS Amplicare and MarketTouch Media acquisitions are now largely complete.
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Throughout the second quarter, the company has been focusing on executing its go-to-market commercial strategy for these acquisitions. In addition, EnlivenHealth also reached a significant milestone, entering the Medicaid market with a new medication synchronization partnership with a leading Medicaid plan.
Solid Q2 Performance: Omnicell’s second-quarter performance exceeded the previously disclosed guidance ranges for total product revenues ($181-$186 million) and service revenues ($97-$102 million). The company also topped the Zacks Consensus Estimates for both earnings and revenues. Higher service revenues and the company’s prior cost-containment actions contributed to the adjusted EPS growth in the quarter.
In addition, the recent customer wins demonstrate the company’s significant role in automating and modernizing global medication management infrastructure. An updated guidance for 2023 also buoys optimism.
Strong Liquidity and Capital Structure: Omnicell exited the second quarter of 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 the second-quarter end, which highlights a sound solvency position. Further, Omnicell had a debt-to-capital of 32.8% at the end of the second quarter compared with the industry’s 40.2%.
Downsides
Rising Expenses May Strain Margins: 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.
In the second quarter, the adjusted operating margin reported a contraction of 118 basis points year over year to 2.6%. For the full year 2023, management anticipates that annual savings in operating expenses will be largely offset by the impact of persisting inflation in employee salaries and increases in performance-based compensation, vendor costs and R&D-related investments.
Competitive Landscape: Omnicell faces intense competition in the medication management and supply chain solutions market from other major players such as Becton Dickinson/CareFusion Corporation, ARxIUM, Cerner Corporation, Talyst, Inc., Emerson Electronic Co. and WaveMark Inc.
Major direct competitors in the medication packaging solutions market like Drug Package, Inc. and AutoMed Technologies, Inc. (a subsidiary of ARxIUM) still pose threats as they spearhead several expansion programs. This increased competition could result in pricing pressure and a reduced margin, which may have an adverse impact on the company’s performance.
Estimate Trend
The Zacks Consensus Estimate for OMCL’s 2023 earnings per share has moved from $1.72 to $1.76 in the past seven days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $1.18 billion. This suggests an 8.76% fall from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Align Technologies ALGN, SiBone SIBN and Quanterix QTRX.
Align Technologies has a long-term estimated earnings growth rate of 17.5% compared with the industry’s 12.3%. ALGN’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, the average negative surprise being 1.76%. Its shares have gained 47.4% compared with the industry’s 13.3% growth in the past year.
ALGN carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SiBone, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 22.9% compared with the industry’s 16.5%. Shares of the company have rallied 26.7% compared with the industry’s 3.5% rise over the past year.
SIBN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 20.37%.
Quanterix, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 62.8% for the current year compared with the industry’s 15.2%. Shares of QTRX have gained 173.8% against the industry’s 2% decline over the past year.
Quanterix’s earnings surpassed estimates in all the trailing four quarters, deliveringan average earnings surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.
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