Omnicell Retains Balanced View - Analyst Blog

On May 29, 2014, we issued an updated research report on Omnicell Inc. OMCL. The company recently reported better-than-expected first quarter results beating the Zacks Consensus Estimate on both lines. However, while 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.

Adjusted earnings per share EPS of 19 cents (considering stock-based compensation as a regular expense), were up 46% from the year-ago adjusted figure of 13 cents. The adjusted EPS number also remained ahead of the Zacks Consensus Estimate by a penny. Revenues in the quarter grew 16.8% year over year to $101.8 million, surpassing the Zacks Consensus Estimate of $97 million. The top line also exceeded the company-provided guidance range of $96−$98 million.

A balanced segmental improvement was seen on the back of strong demand to upgrade to Omnicell's G4 platform. In this quarter, a major market trend which the company noticed was that of its customers moving toward more integrated, enterprise-wide system management. Riding well on its Unity platform, in Dec 2013, Omnicell announced certain product launches whose shipping it expects to begin shortly.

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.

However, we are concerned with the escalating product costs. We expect this to continue even in the coming quarter with an unfavorable product mix leading to a drag in gross margin.

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. In addition, 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 #3 (Hold).

Key Picks from the Sector

Some better-ranked stocks in the medical instruments industry include Edwards Lifesciences Corp. EW, Masimo Corporation MASI and Natus Medical Inc. BABY. All the three stocks carry a Zacks Rank #2 (Buy).