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On Mar 19, 2013, we reiterated our Neutral recommendation on Omnicell Inc (OMCL - Analyst Report) following its fourth-quarter results. The stock also carries a Zacks Rank #3 (Hold).

Why the Reiteration?

On Jan 31, 2013, Omnicell’s fourth-quarter EPS shot up 50% on a year-over-year basis to 18 cents, a beat of 12.5% over the Zacks Consensus Estimate. Revenues jumped 43.3% year over year to $90.2 million, a milestone for the company, surpassing the Zacks Consensus Estimate of $87 million.

Omnicell continues to benefit from its entry into the highly profitable and underpenetrated non-acute care market with the acquisition of MTS Medication. The company’s access to automated medication adherence packaging equipment and consumables across the non-acute range of patient care should catalyze growth over the long haul. In addition, there is a substantial demand for adherence packaging equipment in the overseas market.

Moreover, the company is also gaining from the shortage of nursing facilities in the U.S. that is leading to higher uptake of the automation solutions by an increasing number of institutions. Omnicell’s recent contract wins, new as well as competitive, reflect this upside.

On the international front, Omnicell plans to expand its footprint in the emerging markets via existing channels to accelerate growth. It strengthened its foothold in the lucrative Middle East market with the Sidra Medical and Research Center contract. We strongly believe that these contract wins will support the company’s positive sales momentum.

On the other hand, Omnicell faces a tough competitive landscape from larger players. This increased competition could result in pricing pressure and a reduced margin, which would have an adverse impact on the company’s performance.

Moreover, hospital spending trends remain unyielding. This presents a difficulty to penetrate the market for smaller hospitals. While the company has won some new deals in larger hospitals, the rest of the market is still susceptible to the economy and credit conditions.

While looming concerns keep us on the sidelines for Omnicell, other medical stocks such as Edwards Lifesciences (EW - Analyst Report), Covidien (COV - Analyst Report) and Conceptus are likely to do well. These stocks carry a Zacks Rank #2 (Buy) each.

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