On Aug 21, 2013, we reaffirmed our long-term Neutral recommendation on Omnicell Inc. (OMCL) following mixed second-quarter results. This provider of end-to-end automation solutions for the medication-use process carries a Zacks Rank #3 (Hold).
Why Neutral?
On Aug 1, Omnicell posted second-quarter earnings of 19 cents, flat year over year. The result missed the Zacks Consensus Estimate by a couple of cents. Revenues climbed 24.3% to $93.7 million, ahead of the Zacks Consensus Estimate of $92 million.
While benefits from the MTS takeover led most of the revenue upside for the company, contract wins and competitive conversions supported organic growth. The consistent and solid top-line growth reflects that Omnicell’s three-pronged strategy of domestic expansion, selective acquisitions and targeted international expansion is yielding positive results. However, the company maintained its expectations for 2013.
We are optimistic that footprint expansion in the international market should foster growth over the long haul. The Middle East and China present meaningful revenue opportunities for Omnicell.
On the tepid side, the company continues to battle escalating costs. This might result in gross margin pressure in the upcoming quarters.
Moreover, constrained hospital expenditure due to a tough macroeconomic backdrop across the globe might hamper Omnicell’s expansion plans. The ongoing hospital consolidation trend in the U.S. might also result in volume pressure for the company. Meanwhile, Omnicell continues to face competitive pressure from larger players in the industry.
Stocks to Consider
While we remain on the sidelines for Omnicell, other stocks such as Alere Inc. (ALR), Affymetrix Inc. (AFFX) and Gilead Sciences Inc. (GILD) are worth considering. These stocks carry a Zacks Rank #1 (Strong Buy).
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