Omnicell Grows Amid Weak Margins, Hospital Spending Woes

On Jun 1, 2016, we issued an updated research report on Omnicell, Inc. (NASDAQ:OMCL) – a healthcare solutions provider that develops and markets end-to-end automation solutions for the medication management market. The company’s outperformance in first-quarter 2016, both on the EPS and revenue front, is heartening.

Omnicell is progressing well with its three-legged strategy that covers market expansion through the delivery of differentiated, innovative solutions; expansion into new markets, primarily outside the U.S.; and expansion through strategic partnerships and acquisition of new technologies.

We are positive on the company’s strategic buyouts that are expected to add value. After the Surgichem acquisition, Omnicell’s latest buyouts include Pennsylvania-based Aesynt, MACH4 Pharma Systems in Germany and Avantec Healthcare in the U.K. According to the company, all these acquisitions support each of the three aspects of its business strategy.

Notably, Omnicell aims to derive a significant portion of its revenues from international operations in the longer term. To this end, the company seeks to expand its international footprint by way of various meaningful strategies. Omnicell has already established its presence in Sweden, Germany, the U.K., Singapore and China where strong pipeline development is underway. In addition, the company has witnessed strong business trends across Europe, in terms of healthy acceptance of its medication adherence products therein.

With acquisitions like Surgichem that have been integrated with Omnicell's U.K. business, MTS Medication and the latest takeover of Avantec, the company can now interact directly with customers in the U.K. on all its product lines. These include medication adherence, robotic dispensing systems, supply chain systems and automated dispensing cabinets. Taking into account the untapped potential, Omnicell plans to expand its presence in the emerging markets via existing channels to leverage growth.

We are, however, concerned about the slow pace of completion of product installation and constrained hospital spending. Moreover, increasing cost of production continues to hamper the company’s margins. Adverse legal issues and tough competition also pose threats.

The stock currently carries a Zacks Rank #4 (Sell).

Key Picks from the Sector

Stocks in the same industry that are worth a look include Digirad Corporation (NASDAQ:DRAD) , athenahealth, Inc. (NASDAQ:ATHN) and Medidata Solutions, Inc. (NASDAQ:MDSO) . All the three stocks hold a Zacks Rank #2 (Buy).