On Jun 17, 2014, Zacks Investment Research upgraded
) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Over the past 60 days, Omnicell has been witnessing declining
earnings estimate revisions for 2014 and 2015 with no positive
movement. The negative revisions led to an 8.1% and a 12.5% fall in
the Zacks Consensus Estimate to 99 cents per share in 2014 and
$1.20 per share in 2015, respectively, over the same time
Omnicell reported better-than-expected first quarter results
beating the consensus on both lines. However, we are concerned with
the escalating product costs.
Omnicell's total cost of revenues was up 13.2% year over year to
$47.3 million. Cost of product sales were up 13.2% year over year
to $47.3 million. Although gross profit improved 20.1% to $54.5
million, gross margin contracted about 147 basis points to 53.6% in
the quarter. We expect this to continue even in the coming quarter
as an unfavorable product mix will lead to a drag in gross
Although 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 concern.
Constrained hospital spending remains a major headwind for the
company. The ongoing hospital consolidation trend that might alter
Omnicell's client base warrants caution. Moreover, the company
faces intense competition in the medication management and supply
chain solutions market with larger players ruling the roost.
Other Stocks to Consider
Investors interested in the broader medical sector could
consider stocks like
Natus Medical Inc.
). All the three stocks carry a Zacks Rank #2 (Buy).
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