We have recently reiterated our Neutral recommendation on
) with a target price of $15.00.
Omnicell reported an EPS of 7 cents in the first quarter of
fiscal 2012, beating both the Zacks Consensus Estimate of 6 cents
as well as the year-ago EPS of 5 cents. However, including $1.0
million in pre-tax settlement expense related to litigation claims
in the year-ago period, adjusted EPS came in at 4 cents for the
first quarter of 2011. Reported earnings increased 75% on a
year-over-year basis, primarily on the back of revenue growth and
improved margins during the quarter.
Revenues in the reported quarter increased 12.2% year over year
to $64.1 million, and exceeded the Zacks Consensus Estimate of $63
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 by
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
In order to further seize the opportunity in this segment,
Omnicell introduced its next-generation G4 product platform last
year. This G4 platform is cost effective and complies with
increasingly stringent regulatory pressures.
The company expects its customers to save up to 70% to 80% of
their investment while upgrading their installed systems to G4.
Additionally, the company's industry-leading products such as
Single Pointe and Anywhere RN are performing well. During the
reported quarter, 28% of the company's orders were generated from
its new contract with greenfield customers who are purchasing
automation on this platform for the first time.
Furthermore, the company is on a deal winning spree, especially
after the launch of G4. We consider Omnicell's recent announcement
of G4 expansion at Texas Children's Hospital, which has been
Omnicell's customer for the last 10 years, as a step ahead in this
direction. This apart, the University of Chicago, the St. Francis
Health System of Oklahoma and Royal Victoria Hospital in Ontario,
Canada have struck deals with Omnicell in recent times.
Additionally, Omnicell aims to expand into the international
market given the fact that the international market is less than 1%
penetrated with very few hospitals adopting medication control
systems. Following its entry in China in 2011 and the launch of the
Mandarin-language versions of G4 platform, the company
encouragingly noted that during the reported quarter, it had
initial sales in China.
Omnicell also announced a partnership with China Resources
Beijing Pharmaceutical for distributing its automated medication
dispensing systems in China.
However, the company's products, primarily catering to the
hospitals and nursing homes, are still suffering from weak
credit markets and higher unemployment. Constrained hospital
spending is a primary headwind for the company.
Moreover, the company faces intense competition in the
medication management and supply chain solutions market from major
players such as
). The company presently retains a short-term Zacks #3 Rank
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