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Omnicell Inc. (OMCL - Analyst Report) reported earnings per share (EPS) of 20 cents in the third quarter of fiscal 2012, significantly up from the year-ago quarter EPS of 9 cents. However, excluding the impact of certain one-time items associated with the MTS acquisition, the adjusted EPS for the third quarter came in at 22 cents, well above the Zacks Consensus Estimate of 13 cents.

Revenues in the reported quarter (including the results of MTS Medication Technologies) increased 30.9% year over year to $84.3 million, nominally missing the Zacks Consensus Estimate of $85 million. Product revenue, contributing 79.9% of revenues, climbed 35.3% to $67.4 million in the quarter, while the same from Services and Others (contributing the rest) witnessed an upside of 15.8% to $16.9 million.

Cost of product sales were up 36.6% to $30.6 million in the quarter. However, cost of services and others revenues remained almost flat year over year at $7.6 million. Gross margin expanded 114 basis points (bps) to 54.6% during the quarter.

The company’s research and development (R&D) expenses were up 8.5% to $5.5 million while selling, general and administrative (SG&A) expenses jumped 24.2% to $29.3 million. However, operating margin during the quarter expanded a significant 586 bps to 13.28%.

At the end of the reported quarter, the company had cash and cash equivalents and short-term investments of $54.8 million compared with $199.9 million at the end of fiscal 2011.

Our take

We are encouraged by Omnicell’s strong top- and bottom-line performances in the reported quarter. After quarters of margin contractions, the improvement in this reported quarter came as an encouragement for the company. We expect that the MTS acquisition is concurrent with the company’s strategy to strengthen its foothold in the automation and business information solutions market.

Additionally, given the fact that very few hospitals have adopted medication control systems in the international market, Omnicell is presently striving to establish its presence in the global arena, especially in markets with huge potential.

Omnicell stands to benefit from favorable demographic trends, regulatory environment and lack of nursing staff. Owing to the growth in the information technology market along with increasing investments from healthcare industries, Omnicell is confident about its success in the near to medium term, specially aided by its SinglePointe and Anywhere RN products.

However, several macroeconomic uncertainties as well as intense competition from major players such as CareFusionCorporation  (CFN - Analyst Report) and McKessonCorporation (MCK - Analyst Report) remain concerns.

Currently, the stock retains a short-term Zacks #2 Rank (Buy). Over the long term, we are ‘Neutral’ on Omnicell.

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