On Dec 7, 2015, we issued an updated research report on Omnicell, Inc. OMCL – a healthcare solutions provider that develops and markets end-to-end automation solutions for the medication management.
Omnicell delivered disappointing third-quarter 2015 results missing the Zack Consensus Estimate on both lines. Lower-than-expected installations and booking related issues in the Automation and Analytics segment are expected to continue in the fourth quarter as well, as reflected by the company’s reduced 2015 revenue guidance.
We are also concerned about the company’s continuous legal hassles, which lead to expense elevation. In the event of legal expenses continuing, the company’s growth will likely be hampered, going forward.
Moreover, Omnicell continues to battle escalating costs. Total cost of revenues in the third quarter grew 16.2% year over year to $52.9 million. Although adjusted gross profit improved 10.8% to $64.3 million (considering stock-based compensation as a regular expense), adjusted gross margin contracted 10 basis points to 51.3%. Additionally, adjusted operating expenses in the quarter increased 2.6% to $47.2 million. Also, slower completion of product installation and constrained hospital spending continue to pose challenges.
On an interesting note, Omnicell is progressing well with its 3-legged strategy that covers market expansion through delivery of differentiated, innovative solutions; expansion into new markets, primarily outside the U.S.; and expansion through strategic partnerships and acquisition of new technologies. Alongside, strategic acquisitions are expected to add value. The earlier acquired MACH4 and Avantec contributed approximately $6.5 million to revenues in the third quarter. We are also positive on the company’s impending buyout of Aesynt.
Currently, the Zacks Consensus Estimate of EPS for 2015 and 2016 stand at 93 cents and $1.25 per share, respectively.
The stock has a Zacks Rank #4 (Sell).
Key Picks from the Sector
Medical stocks such as Allscripts Healthcare Solutions, Inc. MDRX, athenahealth, Inc. ATHN and OmniComm Systems Inc. OMCM are worth a look. All the three stocks carry a Zacks Rank #2 (Buy).
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