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Here's Why You Should Hold on to Omnicell (OMCL) Stock Now

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Omnicell, Inc. OMCL has been gaining from robust segmental growth. Expansions in gross margin as well as partnerships with various healthcare services buoy optimism.

Over the past six months, shares of the Zacks Rank #3 (Hold) company have outperformed its industry. The company has gained 15.9% compared with an 6.2% rise of its industry. Also, it has outperformed the S&P 500’s 13.2% rally during the same period.

The renowned developer and provider of end-to-end automation solutions for the medication-use process has a market capitalization of $3.68 billion. The company projects 10% growth for the next five years and expects to maintain its strong segmental performance. Further, it surpassed earnings estimates in three of the trailing four quarters, delivering a positive surprise of 14.4%, on average.


 

Let’s delve deeper.

Solid Q4 Results: Omnicell exited fourth-quarter 2019 with better-than-expected revenue results. The top line registered strong year-over-year growth and the company continued to see solid segmental contributions. The expansion of gross margin in the reported quarter is encouraging as well. The company is upbeat about the expanding base of the Autonomous Pharmacy vision due to increasing customer adoptions.

Product Innovation: We are upbeat about Omnicell’s efforts, regarding product innovation, through R&D. Its XT Automated Dispensing Cabinets, showcased in April 2019, are expected to enhance workflow efficiency, medication accountability and patient safety through the latest hardware technology and software features. The company's Patient Engagement platform helps guide and track patient interactions. It also enables pharmacists to deliver interventions more effectively to help improve medication use.

Omnicell also announced notable clinical enhancements and the expansion of its IV compounding service, which combines advanced technology, clinical expertise, operational support and workflow to address challenges in sterile compounding.

Partnerships: We are upbeat about Omnicell’s various partnerships of late. Partnerships with Fairview Health Services and Geisinger are expected to boost Omnicell’s portfolio. Some other health care centers, which have adopted Omnicell's technology, are Duke University Hospital and Atrium Health in North Carolina.

Omnicell’s partnership with Kit Check to offer Bluesight for Controlled Substances diversion prevention software is aimed at helping customers gain better visibility of controlled substances across the pharmacy supply chain. Another notable collaboration that Omnicell signed was with Huron (a global professional services firm) to provide project implementation and change management services for customers adopting Omnicell’s technology.

Downsides

Escalating Costs: The company has adopted several strategies to drive its top line, including portfolio expansion, acquisitions and further penetration in the medication adherence market. This has led it to continue facing escalating costs. Also, for the upcoming quarters, the company continues to expect higher costs, stemming from the integration of new acquisitions and expenses related to the XT series and IV workflow.

Competitive Landscape: Omnicell faces intense competition in the medication management and supply chain solutions market from key players like Cerner Corporation. Major direct competitors in the medication packaging solutions market include Drug Package, Inc. The increased competition could result in pricing pressure and a reduced margin for Omnicell, which would have an adverse impact on its performance.

Estimate Trend

The company is witnessing a positive estimate revision trend for 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings has moved 0.9% north to $3.07.

The Zacks Consensus Estimate for Omnicell’s first-quarter 2020 revenues is pegged at $226.1 million, suggesting an 11.6% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc. HRC.

ResMed has a projected long-term earnings growth rate of 14.5%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Medtronic’s long-term earnings growth rate is anticipated to be 7.4%. The company presently carries a Zacks Rank #2 (Buy).

Hill-Rom’s long-term earnings growth rate is anticipated to be 11.1%. It currently carries a Zacks Rank #2.

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