(OMCL) Omnicell Analyst Reaffirms Shares at Neutral

We recently reiterated our Neutral recommendation on Omnicell (OMCL) with a target price of $17.00.

Omnicell reported adjusted EPS of 9 cents in the third quarter of fiscal 2011, beating the Zacks Consensus Estimate by a penny and the year-ago quarter EPS of 4 cents. Revenues in the reported quarter increased 5.6% year over year to $64.4 million and surpassed the Zacks Consensus Estimate of $63 million.

The company primarily 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 and gradual modernization of the healthcare system, the demand for automated healthcare management systems has also been on the rise.

In order to further seize the opportunity, Omnicell introduced its next-generation G4 product platform in May, this year. This G4 platform is cost effective and complies with increasingly stringent regulatory pressures.

Following the introduction of G4, Omnicell announced 11 new product launches, including its first automated dispensing system run by Windows 7, its Savvy mobile medication system, a redesigned anesthesia work station, and a redesigned controlled substance management system.

Moreover, Omnicell is working toward expanding its presence in untapped markets, which possesses immense growth potential. Expansion to these under-penetrated markets provides further opportunity for the company to boost its top line.

Going forward, Omnicell expects to develop products incorporating new technologies to gain more market share and to continue to win more deals and expanding its foothold in the international market. We expect these developments to bode well for the company’s growth.

Furthermore, the company is on a deal winning spree, especially after the launch of G4. The company inked deals with Premier Purchasing Partners, the group purchasing arm of Premier Inc and University of Chicago Medical Center (UCMC), which will deploy its G4 solutions for developing a decentralized drug dispensing model. Besides, in October this year, Omnicell won another contract from Schneck Medical Center.

Additionally, Omnicell aims to expand into the international markets to boost its top line. Presently, outside US, Omnicell operates in Canada, Europe, South America, Australia and Asia with supply chain sourcing in Asia. In November, Omnicell launched its Mandarin-language versions of G4 platform for clinical use in China.  Despite the tough economic conditions in Europe, we are optimistic about Omnicell’s growth prospects in the international arena.

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 tap the under-penetrated healthcare IT market. In addition, the company’s recent collaborations and acquisitions leading to pipeline expansion are expected to drive growth further.

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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