We recently reiterated our Neutral recommendation on Omnicell (OMCL) with a target price of $15.00.
Omnicell reported an adjusted EPS of 3 cents in the first quarter of fiscal 2011, in line with both the Zacks Consensus Estimate and the prior-year quarter..
Total revenue for the first quarter was $57.2 million, up 5.5% year over year but below the Zacks Consensus Estimate of $58.0 million. Product revenue, contributing 74.5% of Omnicell’s total revenue, remained almost unchanged at $42.6 million. However, revenues from Services and Others, contributing for the rest witnessed a robust 22.9% increase.
The company operates in the niche automated medication distribution industry and stands to benefit from favorable demographic trends, regulatory environments, and a 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.
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 million in 2011 from the acquisition of Pandora.
Further, in May 2011, the company launched its highly advanced single database G4 platform, which will bolster Omnicell’s automated dispensing cabinet systems. Omnicell expects this platform to be the backbone of all its products, making medication management less prone to administrative errors and inefficiencies that can harm patients. We expect these developments to bode well for the company’s growth.
Additionally, Omnicell with its full potential and various strategies of expanding into international market aims to boost its top line. Presently, outside 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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