We recently upgraded Omnicell, Inc. (OMCL) to an ‘Outperform’ with a target price of $15.50 based on a P/S of 2.2x our fiscal 2010 revenue estimate of $225 million. The company’s strong long-term outlook prompts us to upgrade the stock.

Omnicell is a leading provider of systems and software solutions, primarily focusing on end-to-end automation solutions for the medication-use process. The U.S. government is increasingly emphasizing the use of healthcare IT these days.

The U.S. government recently approved more than $20 billion in spending on healthcare IT. Though a majority of the spending will be felt between 2011 and 2015, this news is a major boost for Omnicell. Furthermore, an economic recovery round the corner will also help the company tap the under-penetrated healthcare IT market.

However, Omnicell reported disappointing results in the fourth quarter of 2009. In the fourth quarter, earnings per share were 2 cents, below the Zacks Consensus Estimate of 3 cents and the year-ago earnings of 10 cents.

Total revenues for the fourth quarter were $54.7 million, declining 11.9% year over year. Lower revenues can be attributed to lower demand for the company’s products due to the economic turbulence.

Omnicell’s products are primarily purchased by hospitals and nursing homes, which are presently grappling with the current economic scenario of weak credit markets, rising expenses, higher unemployment, and erosion of wealth. This has resulted in the decline in net sales.

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