Omnicell Stays on Hold

Headquartered in Mountain View, CA, Omnicell Inc. (OMCL - Analyst Report) founded in 1992, develops and markets end-to-end automation solutions for the medication-use process.

These automation solutions contain medication and supply dispensing systems, central pharmacy storage, retrieval and packaging solutions, a bedside automation solution, a physician order management solution, a decision support application, and a Web-based procurement application. These solutions enable healthcare facilities to acquire, manage, dispense and deliver pharmaceuticals and medical supplies, as well as enhance patient safety, reduce medication errors, improve workflow, and increase operational efficiency.

The rise in information technology (IT) investment by healthcare providers, coupled with a gradual modernization of the healthcare system, has created a demand for automated healthcare management systems. Moreover, due to the nature of the untapped markets in which OMCL operates, the company has a tremendous growth opportunity from these markets in the coming years.

The $10 billion automated systems market, which the company caters to through its Omnicell PharmacyCentral and SafetyPak products, is only one-fourth penetrated. We believe the company is well-poised to expand its presence in these under penetrated markets. Furthermore, the automated systems market has historically shown a growth rate between 10% and 15%, with OMCL exceeding the industry.

The company’s first-quarter results were poor with lower revenue and EPS. The present economic turbulence has negatively affected the company’s revenue. However, the U.S. government’s recent moves to approve more than $20 billion in spending on healthcare IT can boost OMCL.

The company is presently trading at a P/S multiple of 1.7x for 2009, higher than the industry mean of 1.1x. We are comfortable applying a P/S multiple of 1.8x for OMCL and arriving at a target price of approximately $11.50. We reiterate ‘Hold’ rating for this stock.