Omnicell: Dispensing Gains in Medical Automation

12/17/2019 5:00 am EST


Hilary Kramer

Editor, GameChangers

According to a 2016 study from the Johns Hopkins University, one out of every seven Medicare patients in the hospital is a victim of medical errors; among the leading causes is the failure to give patients the proper medication or to give it in incorrect doses, notes Hilary Kramer, editor of GameChangers.

Omnicell (OMCL) provides solutions to this problem that also give hospitals the opportunity to cut costs at the same time. The company is a leading provider of medication and supply dispensing automation, central pharmacy automation, analytics software and medication adherence solutions.

The Automation and Analytics segment designs and manufactures medication and supply dispensing systems, pharmacy inventory management systems and related services. The company’s products are in use in over 5,000 health care facilities worldwide.

The Medical Adherence segment sells a variety of tools and aids to help patients adhere to their medical regimens and includes the software-based systems and medical adherence packaging that assist in administering the proper dosage. These products are in use in over 40,000 institutional and retail pharmacies worldwide.

The company is also developing an “Autonomous Pharmacy,” in which medications will be managed by a fully automated digital infrastructure which will be free from human error, eliminate medical waste and reduce the opportunity for opioid abuse.

At less than 27X next year’s EPS, the stock fits in well with our current strategy of finding under-appreciated growth stocks at a time when some of the growth universe is frothy.

Its valuation is somewhat depressed due to a bearish analyst report which held that the company was overstating revenues on the somewhat simplistic basis that the company’s receivables had been growing faster than sales.

However, as of Sept. 30, days of receivable outstanding have actually dropped to 82 days from 93 in the past year, and cash generated from operations had risen to $110 million from $56 million through the first nine months of 2019.

With cash flow this strong, it is highly doubtful that the company is recognizing its revenues improperly. Look for the stock to be better appreciated by the company in 2020 as it shows continued growth. Buy under $82. My target is $90.

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