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We recently reiterated our Neutral recommendation on Omnicell (OMCL - Analyst Report) with a target price of $16.00.

Omnicell reported EPS of 12 cents in the fourth quarter of fiscal 2011, beating both the Zacks Consensus Estimate of 8 cents and the year-ago EPS of 2 cents. In fiscal 2011, EPS came in at 30 cents versus 15 cents a year ago. Reported EPS also beat the Zacks Consensus Estimate by a penny.

Revenues in the reported quarter increased 9.9% year over year to $62.9 million and were almost in line with the Zacks Consensus Estimate. For the full year, revenues stood at $245.5 million, up 10.4% year over year.

The company primarily operates in the niche automated medication distribution industry and stands to benefit from favorable demographic trends, regulatory environments, and the lack of nursing staff. As the information technology market is growing in leaps and bounds with increasing investment by healthcare industries and gradual modernization of the healthcare system, the demand for automated healthcare management systems has also been on the rise.

In order to further seize the opportunity in this segment Omnicell introduced its next-generation G4 product platform in 2011. This G4 platform is cost effective and complies with increasingly stringent regulatory pressures.

Following the introduction of G4, Omnicell announced the launch of 11 new products includinga new computer console for medication and supply management systems, a new version of open platform supply system, a new operating room medication management system for anesthesiologists, a new controlled substance management system for the central pharmacy and a new version of analytics software.

The company expects its customers to save up to 70% to 80% of their investment while upgrading their installed systems to G4. Additionally, the company’s industry-leading products such as Single Pointe and Anywhere RN are performing satisfactorily.

Furthermore, the company is on a deal winning spree, especially after the launch of G4. We consider Omnicell’s long-term contracts with Wellmont Health System, Sentara Healthcare, Deaconess Health System and Orange Regional Medical Center as a positive development in this direction.

Added to this, leading healthcare providers like the University of Chicago, the St. Francis Health System of Oklahoma and Royal Victoria Hospital in Ontario, Canada struck deals with Omnicell. The company also inked deals with Premier Purchasing Partners, the group purchasing arm of Premier Inc. Besides, in late 2011, Omnicell won another contract from Schneck Medical Center.

Additionally, Omnicell aims to expand into the international market to boost its top line. Presently, outside US, Omnicell operates in Canada, Europe, South America, Australia and Asia with supply chain sourcing in Asia. In November last year, Omnicell launched its Mandarin-language versions of G4 platform for clinical use in China.

In January 2012, Omnicell launched its G4 platform in the Middle East. Despite the tough economic conditions in Europe, we are optimistic about Omnicell’s growth prospects in the international arena.

Although Omnicell expects to boost its sales going forward, constrained hospital spending is a major headwind for the company. Moreover, the company faces intense competition in the medication management and supply chain solutions market from major players such as CareFusion Corporation (CFN - Analyst Report) and McKesson Automation (MCK - Analyst Report).

However, we believe that a slowly recovering economy will help the company tap the under-penetrated healthcare IT market. In addition, the company’s recent collaborations and acquisitions leading to pipeline expansion are expected to drive further growth.

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