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Omnicell's Global Expansion on Track, Stiff Competition Ails

Zacks Equity Research

On Mar 15, we issued an updated research report on Omnicell, Inc. OMCL.  The company has laid out its strategy of expanding into new markets. This tactical move has so far been driving significant growth in the Non-Acute Care segment. However, a tough competitive landscape is a dampener.

This developer and marketer of end-to-end automation solutions for the medication-use process has outperformed its industry over the past six months. The stock has rallied 23.3% against the industry’s 9.6% decline.

Notably, Omnicell steadily saw a solid uptake of Omnicell XT. It also inked various deals for both the XR2 and the IVX Workflow products. A rise in bookings and product backlogs was also observed in the last reported quarter.

We are encouraged by the company’s diligent focus on product innovation through R&D. Also, Omnicell is expected to gain traction from launches, strategic partnerships (the latest being Stormont Vail Health) and digital transformation.

Omnicell, Inc. Price

Omnicell, Inc. Price | Omnicell, Inc. Quote

Outside the United States, healthcare providers are increasingly becoming aware of the benefits of automation. Additionally, there is substantial demand for adherence to packaging equipment beyond the domestic market. Given the fact that the penetration of the international market is even less than 1% with a very few hospitals adopting medication control systems, Omnicell is rapidly foraying into fresh markets.

This stance so far is driving significant growth in the Non-Acute Care segment of Omnicell. Albeit the company consistently targets the Middle East and South Africa, it still sees greater adoption of technologies in other parts of the world like Australia, the United Kingdom, parts of Asia, Germany and France.

Internationally, the company announced its first IV robotics deal and made inroads into the South Korean market with several hospital locations.

We are also upbeat about the company’s progress through acquisitions and partnerships. In the fourth quarter of 2018, Omnicell continued to strengthen its partnership with Texas Children’s Hospital, driven by the addition of the latest automation for pharmacy including the XR2 automated system, IV Compounding Solution and expansion of the XT footprint. Also, the California Department of Corrections and Rehabilitation is extending its partnership with Omnicell and is opting for a state-budgeted clinic model using the XT Series platform at each of its 34 institutions, thereby automating the medication path process.

Meanwhile, Omnicell faces intense competition in the medication management and supply chain solutions market. Stiff rivalry could result in pricing pressure and a reduced margin, which might affect the company’s performance in turn.

Also, the company persistently battles against escalating costs. Omnicell continues to anticipate higher costs in the upcoming quarters, thanks to new acquisitions and expenses related to the recently-launched XT series and IV workflow.

Zacks Rank & Key Picks

The stock carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader medical space are ABIOMED, Inc., ABMD, Varian Medical Systems, Inc. VAR and Masimo, Inc. MASI, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABIOMED’s long-term earnings growth rate is expected at 27.67%.

Varian’s long-term earnings growth rate is projected at 8.00%.

Masimo’s long-term earnings are predicted to grow 15.60%.

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