Earnings momentum for
) has jumped in the past 7 days, since this provider of end-to-end
automation solutions released strong third quarter results last
week. Shares of this Zacks #2 Rank (Buy) are up 10% since the
announcement. The company has now delivered positive earnings
surprises for 7 consecutive quarters with an average beat of 61.7%.
Strong Third Quarter
On October 25, Omnicell reported third quarter adjusted earnings
per share of 22 cents, beating the Zacks Consensus Estimate of 13
cents by 69.2% and the year-ago earnings of 9 cents by 144.4%.
Revenues (including the May 2012 acquisition of MTS Medication
Technologies) increased a robust 30.9% year over year to $84.3
million. Product revenue, contributing 79.9% to total revenues,
climbed 35.3% to $67.4 million in the quarter, while the revenue
from Services and Others (contributing the rest) witnessed an
upside of 15.8% to $16.9 million.
Margin contraction over the last few quarters prompted the company
to implement a number of cost-saving measures. These strategies
benefited Omnicell in the reported quarter in the form of a 114
basis points (bps) expansion of gross margin to 54.6%. Despite
higher research and development (up 8.5% to $5.5 million) and
selling, general and administrative expenses (up 24.2% to $29.3
million), operating margin during the quarter expanded a
significant 586 bps to 13.3%.
Omnicell has been taking a number of strategic steps to align its
assets while expanding its footprint worldwide. A three-pronged
strategy consists of domestic expansion, selective acquisitions and
targeted international expansion.
The recent MTS acquisition marked Omnicell's entry into the huge
and under-penetrated non-acute care market. In the third quarter,
profit generated from this segment sailed past the company's
Moreover, several new contracts have recently enabled the company
to better compete in acute care settings. Given that the
international market is less than 1% penetrated, Omnicell is
currently working on expanding its international footprint,
especially in the growing Chinese and Middle East markets.
Earnings Estimates on the Rise
Over the past 7 days, the Zacks Consensus Estimate for 2012 has
gained 20.5% to 47 cents per share, aided by upward revisions from
all 4 estimates. This represents year-over-year growth of about
46.1%. Meanwhile, the Zacks Consensus Estimate for 2013 is up 14.3%
to 72 cents on increased revisions from 2 of 4 estimates. This
indicates growth of about 52.9% year over year.
Valuation of Omnicell looks attractive with respect to most
valuation metrics. The company is trading at a forward P/E of
31.19x, a 15.8% discount to the peer group average of 36.86x.
The price-to-book ratio of 1.6x is also substantially lower than
the peer group average of 3.9x. Similarly, the price-to-sales ratio
of 1.7x is at a 36.5% discount to the peer group average of 2.66x.
Omnicell's return on investment (ROI) of 7.1% is at a slight
discount to the peer group average of 7.9%. This implies that the
company reinvests its earnings almost as efficiently as its peer
Chart Reflects Strength
Omnicell's price performance has been trending higher following the
release of its third quarter results. The price and consensus chart
shows that estimates for the next two years are on the rise with
the stock price moving right along. Moreover, the stock price
remains below the 2013 and 2014 earnings estimate lines, suggesting
that the stock is still undervalued.
Omnicell develops and markets end-to-end automation solutions for
the medication-use process. These automation solutions enable
healthcare facilities to acquire, manage, dispense and deliver
pharmaceuticals and medical supplies, as well as enhance patient
safety, reduce medication errors, improve workflow and increase
operational efficiency. The company provides procurement and
inventory management systems to more than 1,600 hospitals,
integrated delivery networks, and specialty healthcare facilities,
including nursing homes, outpatient surgery centers,
catheterization labs and clinics. With the MTS acquisition,
Omnicell currently reports under two operating segments: Acute Care
and Non-Acute Care. Omnicell has a market capitalization of $485.5
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