(OMCL) Omnicell Analyst Maintains Neutral on Shares

We recently reiterated our Neutral recommendation on Omnicell (OMCL) with a target price of $16.00.

Omnicell reported an adjusted EPS of 8 cents in the second quarter of fiscal 2011, beating both the Zacks Consensus Estimate and the year-ago quarter’s EPS of 6 cents.

Total revenue for the second quarter was $61.0 million, up 6.6% year over year and surpassed the Zacks Consensus Estimate of $60.0 million. Product revenue, contributing 75.8% of Omnicell’s top line, increased 8.5% to $46.2 million in the quarter while revenues from Services and Others (contributing the rest), witnessed a marginal upside of 1.4%.

The company operates in the niche automated medication distribution industry and stands to benefit from favorable demographic trends, regulatory environments, and the lack of nursing staff. As the information technology market is growing in leaps and bounds with increasing investment by healthcare industries,

Omnicell is confident about its success in the near to medium term, specifically with its industry leading products like SinglePointe and Anywhere RN.

To further expand its presence in the malocclusion market, Omnicell introduced its next-generation G4 product platform in May 2011. This G4 platform is also cost effective and complies with increasingly stringent regulatory pressures.

The company expects G4 to reduce the administrative effort and increase the interoperability of its software through the introduction of a new architecture. Omnicell expects this platform to be the backbone of all its products, making medication management less susceptible to administrative errors and inefficiencies that can harm patients.

Furthermore, Omnicell has undertaken several initiatives in the past few quarters including strengthening of the sales force, partnership with Cardinal Health (CAH) to acquire automated dispensing cabinets from the medication wholesaler at a cheaper rate, partnership with Helmer to provide a new medical grade refrigerator product, a partnership with RxScan to offer additional barcode verification and its acquisition of Pandora Data Systems. The company expects to generate revenues of $3–$4 million in 2011 from the acquisition of Pandora.

Additionally, Omnicell aims to expand into the international markets to boost its top line. Presently, besides the US, it operates in Canada, Europe, the Middle East and Asia with supply chain sourcing in Asia. We are optimistic about Omnicell’s international growth prospects.

Although Omnicell expects to boost its sales going forward, constrained hospital spending is a major headwind for the company. Moreover, the company faces intense competition in the medication management and supply chain solutions market from major players such as CareFusion Corporation (CFN) and McKesson Automation (MCK).

However, we believe that a slowly recovering economy will help the company to tap the under-penetrated healthcare IT market. In addition, the company’s recent acquisitions and collaborations leading to pipeline expansion are expected to drive growth further.

CARDINAL HEALTH (CAH): Free Stock Analysis Report

CAREFUSION CORP (CFN): Free Stock Analysis Report

MCKESSON CORP (MCK): Free Stock Analysis Report

OMNICELL INC (OMCL): Free Stock Analysis Report

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