Omnicell
’s
OMCL
increasing cost of production continues to hamper the company’s margin performance. Weak hospital spending trends and tough competition also pose threats. The stock currently has a Zacks Rank #5 (Strong Sell).
Over the past year, Omnicell’s stock has underperformed the
industry
it belongs to. The stock has declined 72.9% compared with the industry’s 67.2% plunge.
Omnicell’s third-quarter revenues missed the Zacks Consensus Estimate. Macroeconomic issues had an adverse impact on OMCL and other health systems, leading to a rapid customer shift at the end of the third quarter. This caused health systems to implement capital budget freezes and additional budget approval processes, resulting in elongated sales cycles.
At the same time, ongoing health system labor constraints continued to increase, which has resulted in a higher-than-typical number of customers requesting to temporarily defer point-of-care implementations. These factors adversely affected bookings and revenues in the company’s point-of-care business, and Omnicell reduced its overall bookings and revenue outlook for the year accordingly.
Omnicell has adopted several strategies to drive its top line, including portfolio expansion, acquisitions and further penetration in the medication adherence market. Thus, OMCL continues to battle escalating costs. Also, the company continues to expect higher costs in the upcoming quarters stemming from the integration of new acquisitions and expenses related to the XT series and IV workflow.
In the third quarter, the company-adjusted gross margin contracted 360 basis points (bps) to 47.5%. The company-adjusted operating expense was up 19.7% year over year. The company-adjusted operating margin of 14% contracted 430 bps year over year in the reported quarter.
Persistent inflationary headwinds, primarily due to semiconductor and other components costs, continue to pose challenges and induced the company to slash its 2022 guidance.
On a positive note, Omnicell’s third-quarter earnings exceeded the Zacks Consensus Estimate. Third-quarter revenues rose 17% year over year.
The strong demand for Omnicell’s mission-critical medication management solutions and the contribution of revenues from the recent acquisitions resulted in year-over-year growth in the top line. Omnicell’s Advanced Services, including the EnlivenHealth products and solutions, continue to see robust demand.
EnlivenHealth closed a deal with a major Northeast-based pharmacy chain contracted for two key digital solutions. EnlivenHealth is expected to exit 2022 with an approximate annual revenue run rate of 90 million as its retail customers appear to increasingly turn to EnlivenHealth for the uniquely positioned SaaS offerings.
Omnicell currently has 152 of the Top 300 U.S. Health Systems under long-term sole source contracts. Strong revenue contributions from the recent acquisitions of FDS Amplicare, ReCept and MarkeTouch Media are other tailwinds. In the reported quarter, the company saw a strong uptake of its newly launched IVX station.
The company’s long-term sole source agreements with more than 50% of the Top 300 U.S. Health Systems will allow it to help customers mitigate ongoing labor challenges.
Key Picks
Some better-ranked stocks from the broader medical space that investors can consider are
ShockWave Medical, Inc.
SWAV
,
Orthofix Medical Inc.
OFIX
and
Merit Medical System
MMSI
.
ShockWave Medical, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.
ShockWave Medical has outperformed its industry in the past year. SWAV has risen 35% against the industry’s 32.6% fall in the past year.
Orthofix Medical, currently sporting a Zacks Rank #1 (Strong Buy), reported a third-quarter 2022 adjusted EPS of 13 cents, which beat the Zacks Consensus Estimate by a stupendous 550%. Revenues of $114 million outpaced the consensus mark by 2.7%. You can see
the complete list of today’s Zacks #1 Rank stocks here.
Orthofix Medical has an estimated next-year growth rate of 58.97%. OFIX’s earnings surpassed estimates in the trailing three quarters and missed in one, the average being 129.1%.
Merit Medical, currently carrying a Zacks Rank of 2, reported a third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.
Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.
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