Omnicell (OMCL Quick QuoteOMCL - Free Report) is well-poised for growth in the coming quarters, backed by its continuous advancement in the Autonomous Pharmacy vision. Strong cost management across the entire organization should benefit the company’s performance across metrics. Stable solvency is highly encouraging.

Meanwhile, rising expenses and a fiercely competitive scenario are our concerns for Omnicell’s operations.

In the past year, this Zacks Rank #3 (Hold) stock has declined 54.3% compared with the 7.8% fall of the industry and 26.5% growth of the S&P 500 composite.

The renowned healthcare technology company has a market capitalization of $1.19 billion. It has an earnings yield of 5.39% compared with the industry’s -9.70%. Omnicell surpassed estimates in each of the trailing four quarters, delivering an average earnings surprise of 173.2%.

Let’s delve deeper.

Tailwinds

Autonomous Pharmacy Model Holds Potential:  Omnicell’s Autonomous pharmacy vision aims to develop a zero-error, fully automated digital medication and supply management delivery platform that will enable pharmacists, nurses and other clinicians to focus more on patients and less on nonclinical and administrative tasks.  A major development in this regard is the company’s Inventory Optimization Service, which leverages cloud-based data and predictive prescriptive analytics for providing real-time visibility with actionable insights and workflow optimization recommendations across the pharmacy supply chain.

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The pandemic underscored the growing need for an entirely new digital medication management infrastructure, gathering interest in this premium cloud-based intelligence solution. In 2023, the company introduced digital medication guides designed to digitize medication and vaccine information sheets. OMCL’s specialty pharmacy service offering is poised to provide a revenue-generating opportunity and support important patient care outcomes.

Anticipated Benefits of Cost-Containment Measures: In 2022, Omnicell introduced restructuring initiatives to enhance and streamline certain engineering functions for its domestic operations and realign its international sales organization to better serve its customers in various international markets. During the same year, the company also announced a plan to reduce the global workforce across a majority of its functions.

In 2023, Omnicell placed a heightened focus on managing costs, including an approximate 7% reduction in its workforce and annualized savings of $50 million from operating expenses by the end of 2024. Omnicell’s performance in key metrics in the fourth quarter of 2023 demonstrated the benefits of these strong cost management actions.

Strong Liquidity and Capital Structure: Omnicell exited the fourth quarter of 2023 with cash and cash equivalents of $468 million, while short-term debt on its balance sheet was nil. This is indicative of a sound solvency position. Further, the company has a current ratio of 2.52, sequentially up by 0.5% from the end of the third quarter.

Downsides

Escalating Expenses May Strain Margins: Omnicell has adopted several strategies to drive its top line, including portfolio expansion, acquisitions and further penetration in the medication adherence market. Similar to its healthcare system partners, the company’s operations continue to be affected by persisting labor shortages and increased inflationary costs related to components’ raw materials and freight.

Omnicell’s gross profit declined 13.4% in the fourth quarter of 2023. The company generated lower revenues from its core Point of Care business, primarily as a result of ongoing healthcare systems’ capital budget and labor constraints.

A Competitive Landscape: Omnicell faces intense competition in the medication management and supply chain solution market. Despite gaining market share from traditional providers, it competes with major players such as Becton Dickinson/CareFusion Corporation, ARxIUM and Cerner Corporation. This increased competition could result in pricing pressure and a reduced margin, which would have an adverse impact on the company’s performance.

Estimate Trend

The Zacks Consensus Estimate for OMCL’s 2024 earnings per share has moved 8.4% south to $1.41 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $1.06 billion. This suggests a 7.5% fall from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are Cardinal Health (CAH Quick QuoteCAH - Free Report) , Stryker (SYK Quick QuoteSYK - Free Report) and DaVita (DVA Quick QuoteDVA - Free Report) .

Cardinal Health has a long-term estimated earnings growth rate of 14.2% compared with the industry’s 10.7%. CAH’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%. Its shares have increased 49.9% compared with the industry’s 4.0% rise in the past year.

CAH carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker, carrying a Zacks Rank #2 at present, has an earnings yield of 3.37% against the industry’s -0.78%. Shares of the company have increased 32.7% compared with the industry’s 11.6% rise over the past year.

SYK’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 5.09%. In the last reported quarter, it delivered an average earnings surprise of 5.81%.

DaVita, sporting a Zacks Rank #1 at present, has an estimated long-term earnings growth rate of 12.1% compared with the industry’s 10.9%. Shares of DVA have rallied 56.7% compared with the industry’s 18.1% rise over the past year.

DVA’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 35.6%. In the last reported quarter, it delivered an average earnings surprise of 22.2%.