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We maintain our long-term Neutral recommendation on Omnicell Inc. (OMCL - Analyst Report) following mixed quarterly results for the first quarter of 2013.

Why the Reiteration?

On May 2, Omnicell’s first-quarter net operating earnings of 14 cents per share missed the Zacks Consensus Estimate by a nickel. Results nevertheless improved 7.7% year over year.

Revenues in the quarter jumped 35.8% year over year to $87.1 million. Despite the considerable improvement, top-line marginally missed the Zacks Consensus Estimate of $88 million. Margin pressure due to escalating costs was another headwind for the company.

We also note that constrained hospital spending might hamper Omnicell’s market penetration in the U.S. Tough competitive landscape also remains an overhang.

However, Omnciell serves a niche industry and stands to gain from its three-pronged strategy of domestic expansion, selective acquisitions and targeted international expansion. The company’s foray into the highly profitable and underpenetrated non-acute care market with the MTS acquisition is yielding positive results.

The recent contract wins are also encouraging. Given the substantial demand in the overseas market and the low penetration rate, international contract wins are likely to accelerate growth for Omnicell.  

We believe that geographic expansion into lucrative markets such as Middle East and China should accelerate growth. Also worth mentioning in this context is Omnicell’s strong business trend in U.K. in the reported quarter.

In light of these facts, it seems like Omnicell is likely to trend higher as it has been taking a number of strategic steps to align its assets while expanding its footprint worldwide. Estimates for the ongoing year are also on the rise. As a result, the Zacks Consensus Estimate for 2013 shot up 29.2% over the last 30 days to 84 cents. This reflects estimated growth of 40% year over year.

The stock carries a Zacks Rank #2 (Buy). Other stocks in the industry carrying a Zacks Rank #2 are Merge Healthcare Incorporated (MRGE - Analyst Report), CONMED Corporation (CNMD - Analyst Report) and The Cooper Companies Inc. (COO - Analyst Report).

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