Omnicell Not Without Risks

Sat. August 02, 2008; Posted: 07:39 AM

Aug 02, 2008 (Zacks Investment Research via COMTEX) -- OMCL | Quote | Chart | News | PowerRating -- Omnicell Inc. (OMCL) reported solid topline growth in the second quarter. However, expenses related to the Rioux acquisition dampened gross and operating margins. Favorable demographic trends, reinforced by a complimentary regulatory environment, are expected to sustain strong growth in demand for hospital services over the foreseeable future. During the second quarter, growth was seen across both Product and Service revenue. We expect the continued market expansion combined with a penetration rate of less than 50% will translate into solid earnings growth over the long term. The company expects to end 2008 with its backlog in the range of $135 million-$145 million, compared with $137 million recorded at the end of 2007. The company continues to execute against competition with new product flow and acquisitions. OMCL also continues to win new contracts, and maintain its quality customer service orientation. While the company is growing faster than its peers, the apparent lumpiness in backlog build increases the risk of earnings shortfall. Moreover, the reliance upon contract manufacturing for the newly acquired Mobile Cart technology adds meaningful execution risk. OMCL currently trades at 2.3x our 2008 sales estimates, a premium to the average of comparables and the industry median (2.1x 2008 sales). While the stock has made gains toward our previous price target of $21, we are moving to a valuation range of 2.2x to 2.5x in light of the increased execution risk. Placing our target at the midpoint, 2.35x 2008 sales, we derive a target price of $18.50. Rajarshi Maulik contributed to the report. Read the full analyst report on OMCL

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For full details on Omnicell Inc (OMCL) click here. Omnicell Inc (OMCL) has Short Term PowerRatings of 7. Details on Omnicell Inc (OMCL) Short Term PowerRatings is available at This Link.

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