Following a strong third-quarter result, we have reiterated
our long-term 'Neutral' recommendation on
), provider of end-to-end automation solutions for the
medication-use process, with a target price of $16.00.
In the third quarter of 2012, Omnicell reported earnings per
share of 22 cents, well above the Zacks Consensus Estimate of 13
cents. Revenues in the quarter (including the results of MTS
Medication Technologies) increased 30.9% year over year to $84.3
million, nominally missing the Zacks Consensus Estimate of $85
After quarters of contraction, the margin expansion in the most
recent quarter was a turnaround. Gross margin expanded 114 basis
points (bps) along with a significant 586 bps increase in
operating margin in the third quarter.
Omnicell serves a niche market that is expected to grow further.
Its inroad into the non-acute care market after its acquisition
of MTS Medication has helped the company develop a wider revenue
base. Given the high profitability and underpenetration of the
non-acute market, the buyout appears to be a rational and
lucrative opportunity to support long-term growth.
Further, the shortage of nursing facilities in the U.S. should
drive demand for automated solutions for medication and supply
solutions. The company is on a deal winning spree as a rising
number of institutions switch over to the automated mode.
We note that the international market remains largely
underpenetrated. Omnicell's continuous attempts to expand its
geographical footprint should yield positive results.
However, lower capital expenditure by hospitals as they battle
reimbursement cuts and budget constraints remains a looming
concern for Omnicell. The company also faces intense competition
in the medication management and supply chain solutions market
from major players such as
We believe that Omnicell, through its attractive growth prospects
and a three-pronged strategy of domestic expansion, selective
acquisitions and targeted international expansion, is poised to
accelerate growth. The stock carries a short-term Zacks #3 Rank
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